Is Inheritance tax changing in 2024? 

Inheritance Tax (IHT) can significantly impact the distribution of an estate after someone’s death. While there are no changes to the UK inheritance tax rates or thresholds for 2024, substantial reforms are set to take effect from April 2025. Being aware of these changes and preparing accordingly is essential for effective estate planning. Inheritance tax advice is crucial for ensuring that your estate is distributed efficiently and with minimal tax liability. 

Professional guidance can help you navigate complex tax laws, identify exemptions, and optimize your estate plan. Proper inheritance tax advice can save your beneficiaries a significant amount in taxes. Here’s a comprehensive overview of the current rules, upcoming changes, and strategies for inheritance tax planning. 

Current Inheritance Tax Thresholds

1. Nil-Rate Band: The standard threshold for inheritance tax is £325,000. This means that if the total value of an estate is below this amount, no inheritance tax is owed.

2. Residence Nil-Rate Band: If you pass on your primary residence to your children or grandchildren, the threshold increases to £500,000. This additional allowance helps reduce the tax burden on family homes.

3. Spousal Transfer: Married couples and civil partners can combine their thresholds. This means that if one partner passes away without using their full allowance, the surviving partner can inherit this unused portion, potentially doubling the threshold to £1 million.

Upcoming Changes from April 2025

1. Shift to Tax Residence: Starting from April 2025, the UK government plans to shift the basis of inheritance tax from domicile status to tax residence. This means that if you have been a UK tax resident for 10 years, you will be liable for inheritance tax on your worldwide assets. This is a significant change from the current domicile-based system.

2. 10-Year Tail: For those who become non-UK residents after being tax residents for 10 years, the new rules will impose a ‘10-year tail’. This means they will remain subject to inheritance tax on their worldwide assets for an additional 10 years even if they move abroad.

3. Impact on Trusts: From April 2025, all non-UK assets held in excluded property trusts (EPTs) will also be subject to inheritance tax. This applies regardless of when the trust was established. The inclusion of non-UK assets in the inheritance tax net will affect both new and existing trusts, making it crucial to reassess your estate planning strategies.

Planning and Advice

With these upcoming changes, careful inheritance tax planning becomes even more crucial:

1. Review Your Estate: Assess the total value of your estate and how the new rules might impact it. This includes evaluating your worldwide assets and any existing trusts. Understanding how these assets will be taxed under the new rules can help you make informed decisions.

2. Utilize Exemptions: Take advantage of available exemptions and reliefs, such as Business Property Relief (BPR), to reduce your inheritance tax liability. With the new rules potentially increasing tax exposure, utilizing these exemptions can be a valuable part of your planning strategy.

3. Seek Professional Advice: Given the complexity of the new inheritance tax rules, consulting with a professional for inheritance tax advice is highly recommended. Experts can provide tailored guidance, help you navigate the changes, and ensure your estate plan is optimized.

Conclusion

The upcoming changes to inheritance tax in April 2025 represent a significant shift in how estates will be taxed. Understanding these changes and planning accordingly is vital to managing your estate effectively. Current thresholds offer opportunities to reduce your inheritance tax liability, but the new residency-based system will broaden the scope of what is taxed. To ensure you are well-prepared and that your estate is handled according to your wishes, consider reaching out for specialized inheritance tax advice. Meru Accounting provides expert services in inheritance tax planning, helping you navigate these changes and secure your financial legacy. By staying informed and seeking professional support, you can confidently manage the complexities of inheritance tax and protect your estate for future generations.