Budget 2024: Inheritance tax set to rise – here’s what it means for you

Chancellor Rachel Reeves is reportedly planning changes to inheritance tax (IHT) at the Budget as she looks to raise up to £40bn from tax hikes and spending cuts.

While specifics remain unclear, any changes could significantly affect how much families pay on inherited properties and their financial futures.

Here’s everything you need to know about the potential changes and what they could mean for your family.

What is inheritance tax?

Inheritance tax is a levy applied to the estate of someone who has died, but only around 4 per cent of families end up paying it, as most estates fall below the tax threshold.

Key to this exemption is that anything left to a spouse or civil partner is not subject to inheritance tax, regardless of the estate’s value. So if a deceased individual leaves their entire estate to their partner, even if valued at £10m, no inheritance tax will be charged.

However, this exemption does not extend to partners who live together but are not married or in a civil partnership.

Each individual has a £325,000 inheritance tax-free allowance. Estates valued below this threshold incur no tax, while those above it are taxed at 40 per cent on the excess.

What changes could be coming?

The government has been exploring multiple avenues to increase revenue. Although specific measures to exemptions and reliefs have yet to be confirmed, discussions include revisiting existing rules surrounding gifts given during a person’s lifetime.

A gift given to one’s children is tax exempt if it is made more than seven years before the parent passes on. These are called potentially exempt transfers (PETs).

The Budget on 30 October could address specific reliefs for businesses and agricultural land, which currently have tax exemptions. However, the extent of the new changes remains unclear.

What has the government said?

Several ministers and the prime minister have promised taxes will not rise for “working people”, suggesting the wealthiest are likely to be hit hardest by new measures.

Ahead of her first Budget, the chancellor refused to rule out hiking capital gains and inheritance tax.

Setting the scene, she said: “I think that we will have to increase taxes in the Budget.”

Ms Reeves did not specify which taxes would rise, but said Labour would stick to its manifesto pledge not to hike national insurance, VAT or income tax.

The chancellor said: “We had in our manifesto a commitment to fiscal rules to balance day-to-day spending through tax receipts, and by the end of the forecast period, to get debt down as a share of GDP.

“Those are sensible fiscal rules to keep a grip of the public finances. We also made other commitments in our manifesto, not to increase national insurance, VAT or income tax for the duration and we’ll stick with those.”

Shadow chancellor Jeremy Hunt criticised Labour’s fiscal plans, saying: “During the election we repeatedly warned that Labour’s sums didn’t add up and that they were planning to raise taxes. The real scandal is that despite planning these tax rises all along, they didn’t have the courage to admit it to the public during the election campaign.

“Unfortunately, it looks like it will be people who have saved all their life to provide an inheritance to their family who will pay the price for Labour’s tax rises.”

What does this mean to you?

It is always worth seeking independent advice on tax planning. If inheritance tax rates increase or exemptions are altered, those intending to leave an inheritance may need to reassess their options to minimise tax liabilities.