- Inheritance tax (IHT)
While the 2024 budget already targeted inheritance tax, further reforms could be implemented, particularly to gifts.
The Chancellor could opt to reduce or remove the current gift reliefs. She could also change the Potentially Exempt Transfer (PET) rules or apply a lifetime cap on the value of gifts that you can make before you die.
The freeze on inheritance tax allowances could be extended beyond 2030, if not now then in a later budget.
Confirmed IHT reforms from the 2024 budget:
- The agricultural property relief and business property relief will become much less generous from April 2026.
- Qualifying AIM shares will be subject to inheritance tax from 2026, at a reduced rate of 20%.
From April 2027, inherited pensions will become liable for inheritance tax.
- Pensions
Media speculation has focussed on whether the Chancellor is considering targeting the 25% tax-free Pension Commencement Lump Sum. She could reduce the £268,275 limit or lower the 25% tax free entitlement itself.
No changes have been announced; this is just a rumour at present. Pension decisions should be aligned to your long-term retirement objectives, not on media speculation.
- Capital gains tax (CGT)
It would not be a surprise if the government opts to align capital gains tax rates with income tax ones. Although the main CGT rates increased last year, the top 24% rate is far below the top 45% income tax rate. The CGT allowance could also be cut again.
Speculation about a potential ‘double death tax’ has resurfaced. In this case, capital gains tax would be applied on top of inheritance tax when assets are passed on death.
- Other investment taxes
The dividend allowance could be abolished and/or the tax rates increased.
The government is keen to encourage equity investment and may, therefore, reduce the cash ISA limit while maintaining the equity contribution at £20,000.
- Income tax thresholds
The government will want to maintain its manifesto pledge to not increase income tax rates, but it can still increase income tax revenue by extending the freeze on income tax thresholds beyond 2028. This approach has proved very effective at drawing more earners into higher income tax bands.
- Landlords and rental income
Landlords have been hit by tax measures over recent years, but there may be more to come. Many speculators suggest that the taxation of rental income may be brought in line with employment income, such as becoming subject to National Insurance Contributions, and/or tax rates aligned with income tax bands.
- A wealth tax
Speculation over a wealth tax of sorts has been building for months, with prominent Labour Party figures expressing support for implementing one.
The Chancellor is perhaps more likely to opt for a tax on higher value property than on total wealth. She could replace stamp duty with an annual tax on high-value property; council bands could be updated so high-value properties/regions pay more tax, and the primary residence capital gains tax exemption could be amended so homes over a certain amount are subject to tax.
Looking ahead
While some tax reforms are announced in advance and implemented from the start of future tax years, others can apply instantly, leaving little or no time to respond. Last year’s immediate capital gains tax hike and the extension of the pensions overseas transfer charge to EU QROPS caught many people out.
Other than the confirmed pensions/inheritance tax reform, the other tax rises discussed here is just speculation for now, and a summary of potential reforms that have been circulating in the media. While some policy issues may be under discussion, no official announcements have been made. Any eventual changes to tax policy, including timing, thresholds and scope, could differ significantly.
It is fair, however, to expect further tax rises. The Chancellor must meet the government’s fiscal rules, at a time when UK growth remains sluggish, the Spring Spending Review allocated substantial additional funding to defence and the NHS, and borrowing is higher than expected.
British expatriates are often impacted by UK tax reforms. The tax on QROPS transfers last year and IHT being applied to pensions are prime examples. If you are concerned, take professional advice for your circumstances and objectives, and what steps you can take to protect your wealth and legacy.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
