Inheritance Tax: What may change in the 2024 Autumn Budget

Graham Doubtfire, Private Client Tax Partner at Scrutton Bland looks at some of the concerns that family-owned businesses are facing as we approach the 2024 Autumn Budget, particularly in relation to capital taxes.

Many of the families that I advise, are concerned about the impact on their life’s work and the effect that changes to Inheritance Tax could have on the wealth that passes to the next generation.  There are also families who I act for who regard themselves as custodians of a family business that has survived for a number of generations who have a real fear that Inheritance Tax changes could disrupt the future operation of that business and the livelihoods of all that are associated with it.

I have been discussing concerns with clients in many different sectors since the announcement of the Autumn Statement on 30 October 2024.  Currently, the Inheritance Tax Reliefs that apply to unlisted trading entities are generally accessible at 100% meaning that these businesses can pass between the generations without Inheritance Tax impacting on the stability of those businesses.  There are currently many important business sectors that are supported by investment that qualifies for Inheritance Tax reliefs including many different kinds of family-owned trading businesses, agriculture and businesses in the green energy sectors.

It is clear that there will be a need to generate additional taxes and the Chancellor will have a delicate balancing act between raising additional tax revenue and ensuring that these businesses, which are the lifeblood of the UK economy, are not disrupted.

Some of the possibilities that we may see announced in the upcoming Budget include:

• The possibility that the amount of Inheritance Tax Relief applicable to a trading business is capped and Inheritance Tax becoming payable on some or all of the value above that cap.
• The rate of Inheritance Tax Relief could change from something other than the 100% rate of Relief that currently applies such that an element of the value that passes on the death of a business owner will be subject to Inheritance Tax. For example, if the rate of relief were reduced from 100% to 75% then with a 40% rate of Inheritance Tax any assets above the nil rate band would face an effective tax rate of 10%.
• The Inheritance Tax Relief may become more targeted, meaning that current assets that qualify for relief may no longer qualify, particularly where those assets are perceived to be investments rather than a genuine ownership of an unlisted trading business.

In discussions with existing clients around these concerns some families have taken the decision to pass on wealth to the next generation now, whilst the existing reliefs apply.  Care will be needed to ensure that other taxes do not arise as a result of any gifts that are made now, in particular Capital Gains Tax, and there is also a need to survive the gift by 7 years for it to be completely outside the Donor’s Estate for Inheritance Tax.  Gifts of assets under existing legislation may provide comfort that the future risks of a change in legislation are removed but it is important that other factors are also considered such as income sources to maintain current standards of living.

Inheritance Tax planning is a very personal matter and there is no one-size-fits-all approach particularly when advising families where the dynamics within the family are as important as the tax at stake, but it is clear that any changes to capital taxes will require current legacy planning to be considered and reevaluated.

If you would like to discuss your personal circumstances with Graham or a member of our Tax team, get in touch by emailing hello@scruttonbland.co.uk or calling 0330 058 6559.