BUDGET COMMENT: Disappointing Budget for families as no movement on inheritance tax thresholds

In reaction to the Government’s Autumn Budget, please see below comment from Mary McCutchan, Associate Solicitor in WSP Solicitors' Private Client team, a firm which has been offering straightforward legal advice and support for over 265 years. 

Mary has close to 10 years’ experience advising on wills, trusts and probate matters, including supporting high- and ultra-high-net-worth clients and dealing with complex estates with overseas elements. 

For many families, the most disappointing aspect of the Budget was the lack of movement on inheritance tax thresholds. 

If the Government wants a fairer inheritance tax system, it should scrap the Residence Nil Rate Band and replace it with a larger, simpler Nil Rate Band. 

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Inheritance Tax and Pensions 

"The Chancellor's Budget has fallen short of providing clarity around how the planned inclusion of pension funds and pension death benefits within the inheritance tax regime will work in practice. 

"There has not been enough consultation with tax advisers about the impact these changes will have on clients and their families. We still do not have a clear framework for how the new rules will operate when administering estates or advising clients following the death of a loved one. 

"Many clients have spent decades saving into pension schemes on the understanding that these funds would provide a tax-efficient way of passing wealth to future generations. While the direction of travel is now clear, considerable uncertainty remains around how these changes will work in practice. 

"We have already seen clients reconsidering retirement and estate-planning decisions as a result of the forthcoming changes. In particular, clients approaching the age of 75 are concerned that beneficiaries may face both inheritance tax and income tax liabilities in relation to inherited pension funds. 

"Greater clarity is needed to ensure families can plan with confidence and advisers can provide meaningful guidance. Without that certainty, there is a risk that some individuals may choose to access pension savings earlier than they otherwise would have done simply because they are unsure what the future tax position will be." 

Inheritance Tax and Estate Planning 

"For many families, the most disappointing aspect of the Budget was the lack of movement on inheritance tax thresholds, which have remained frozen for many years despite rising property values and inflation. 

"Clients were hoping the Government would recognise that inheritance tax is increasingly affecting ordinary families rather than just the wealthiest estates. As assets continue to rise in value, more people are being drawn into the inheritance tax system despite no significant increase in their standard of living or disposable wealth. 

"If the Government is serious about creating a fairer inheritance tax system, it should consider abolishing the Residence Nil Rate Band and replacing it with a larger Nil Rate Band, perhaps one that is banded in line with the wealth of the individual, similar to council tax banding. 

"This relief needs to be less complicated; not require the deceased person to have had children or to own a house and better reflect modern society. The millennial generation are having fewer children and many cannot afford to own a home, yet the relief still depends on both. If the Government wants a fairer inheritance tax system, it should scrap the Residence Nil Rate Band and replace it with a larger, simpler Nil Rate Band. 

"With both the Nil Rate Band and Residence Nil Rate Band remaining frozen until at least 2031, the Budget missed an opportunity to modernise a system that many families and advisers already find difficult to navigate." 

Agricultural Property Relief and Business Property Relief 

"The Budget was an opportunity for the Government to provide further reassurance to farming and business families following the recent changes to Agricultural Property Relief and Business Property Relief. However, many clients will feel that questions remain about how these reforms will affect succession planning in the years ahead. 

"While the increase in the threshold to £2.5 million and the introduction of transferable relief will provide comfort to many, concerns remain for families whose assets exceed those limits. That said, the reality is that these changes now appear to be firmly established. At this stage, clients and advisers need to focus on planning within the new framework rather than expecting further reversals or significant amendments. 

"What our clients wanted from this Budget was confidence and certainty. They wanted reassurance that they could continue planning for the future and pass businesses and farms to the next generation without creating additional financial strain or uncertainty. Unfortunately, many of those concerns remain."

Ends

Editors notes