Many affluent individuals are reportedly transferring significant portions of their wealth ahead of anticipated changes to inheritance tax (IHT) in Labour’s first Budget on 30 October. Among those allegedly taking action is TV presenter Anne Robinson, who has confirmed passing on £50 million to her children and grandchildren. Should you think about doing the same?

First, it’s crucial to consult with us to determine the value of your estate and assess potential IHT exposure under the current rules. At present, each person is entitled to a nil rate band of £325,000, with the possibility of an additional £175,000 against the value of the family home, provided it—or assets of equivalent value—is left to direct descendants upon death. This extra £175,000 allowance is known as the residence nil rate band (RNRB).

There is also an unlimited exemption where assets are transferred either during a lifetime or upon death to a surviving spouse or civil partner. If the deceased spouse’s nil rate bands are unused, they can be transferred to the surviving spouse, potentially increasing the tax-free amount to £1 million on the second spouse’s death. However, it’s not that straightforward. Where the estate exceeds £2 million, the RNRB is reduced by £1 for every £2 over the £2 million threshold. For wealthy couples, this means the RNRB is reduced to nil where the estate value exceeds £2.7 million, leaving just the combined nil rate bands of £650,000. Note that the current IHT rate on the death estate is 40% once the nil rate band has been used.

Currently, 100% relief from IHT is available when business and farming assets are transferred either during a lifetime or upon death, and it is hoped that these reliefs will continue, so survivors aren’t forced to sell assets to pay the tax. However, these generous reliefs might not continue under the new government.

Lifetime Transfers Under the current rules, no IHT is due if the donor survives for at least 7 years after transferring assets. These transfers are known as potentially exempt transfers (PETs), and IHT is payable if the donor dies within 7 years. It’s important to note that the transfer must be an outright gift, with no continued use or enjoyment of the asset by the donor. For instance, gifting the family home but continuing to live there is generally ineffective unless conditions such as paying market rent are met.

There may also be capital gains tax (CGT) implications of a lifetime gift, although it might be possible to defer the gain, so no CGT is payable on the increase in value from when the asset was acquired. Holdover relief is currently available for business assets and on transfers of assets into trust.

Please contact us if you have concerns about IHT and wish to consider taking action before Budget Day.