The Autumn Budget on 30th October is eagerly anticipated, and with the possibility of significant changes being introduced that could impact estate planning strategies and Inheritance Tax (“IHT”), it is imperative that individuals reassess their estate planning and consider ways to mitigate IHT.

Although specifics of the Autumn budget are still unknown, this article provides a comprehensive overview of key estate planning and IHT considerations, whilst also highlighting the potential changes that could be introduced and its implications on an individual’s estate.

Estate Planning

Estate planning is crucial to ensure that your estate passes in accordance with your wishes, providing peace of mind for you and your loved ones. If you do not have a Will in place, your estate will instead pass in accordance with the Rules of Intestacy, which may not reflect how you wish for your estate to be left. This is of particular concern for couples who are not married, as neither party is entitled to the other’s estate.

An effective Will should also ensure that IHT is minimised and that the estate is protected for future generations. It is therefore important to ensure that your Will includes appropriate structures to ensure that as much of your estate passes to your intended beneficiaries.

If you do not have a Will in place, we would strongly recommend that you speak with one of our estate planning specialists to discuss your aims and objectives and the different structures available to meet those objectives and to minimise IHT.

If you do have a Will in place, we would recommend that you review your Will to ensure that it still aligns with your wishes. Our estate planning specialists can also review Wills free of charge to ensure that the Will structure is still appropriate.

It is worth bearing in mind that Wills put in place during the current tax regime may no longer be appropriate once the new budget is put in place. Our estate planning experts can provide you with guidance on this and whether any changes need to be made to your Will.

Inheritance Tax (“IHT”)

The current IHT allowance called the ‘Nil Rate Band’ (“NRB”) is £325,000 per person and is transferrable between spouses. There is also a ‘Residential Nil Rate Band’ (“RNRB”) of up to £175,000, which applies where (amongst other things) residential property passes to a direct descendant (i.e. children). This tapers away when the estate of someone who dies exceeds £2million (excluding pensions). This allowance is also transferrable between spouses.

Anything above these available allowances (subject to any other available reliefs or allowances) is then taxed at 40%. This therefore has a huge impact on the net value left to beneficiaries.

Potential Changes and What You Can Do Now

With fewer than 5% of estates currently getting charged inheritance tax, IHT is a strong candidate when considering which taxes the chancellor might increase in the upcoming budget.

Here are the potential changes that could be made to IHT based off recent speculation:

• The chancellor may consider lowering the current IHT thresholds, or removing the RNRB. This would result in far more estates falling into the IHT net. 
• Alterations to the eligibility criteria for Business Property Relief (“BPR”). At present, BPR exempts unquoted shares in trading businesses (amongst other things) from IHT, provided that there is no binding contract for sale for those assets in place at the time of your death and you have held such shares for more than 2 years. The relief is uncapped and some commentary has suggested that this may be changed. If you are concerned about BPR, you could consider gifting shares now to take advantage of this relief (possibly into trust).
• Similar to BPR relief, Agricultural Relief could also be tightened. Currently agricultural property and land receives 100% relief.
• There is the possibility that the IHT rules on lifetime gifts could also change. As things stand, making gifts during your lifetime is considered a “potentially exempt transfer”, so that the gift will only be considered exempt from IHT if the induvial survive 7 years or more from the date of the gift, otherwise the gift will remain part of the estate for the purpose of IHT. If the individual survives for three years from the date of the gift, the IHT charge is lowered (known as ‘tapering relief’). There has been discussion about the chancellor extending the 7 year survival period so that a greater number of lifetime gifts are charged to IHT on death and also possibly removing the tapering relief. If you are considering making gifts in lifetime to reduce IHT due on your death, speak with one of our IHT experts today.
• It is also proposed that pensions will be taken into account when calculating IHT due on an estate. Pensions are currently usually excluded from the calculation if they have been nominated appropriately, and so there will be a significant impact on the number of estates over the IHT thresholds if this were to change in the budget.

Given the uncertainty surrounding the Autumn budget, putting planning in place now is essential to protect your estate and to ensure that IHT is minimised. The Private Client team at JMW Solicitors have a wealth of experience when it comes to advising on all forms of tax mitigation and estate planning. We would be delighted to help you if you are considering your estate planning needs.