Inheritance Tax
In the most recent Autumn budget, chancellor Jeremy Hunt announced that the current inheritance tax (IHT) thresholds would remain frozen for an additional two years until April 2028.
This means that the current IHT band will have stayed the same for almost two decades since 2009, despite the average house price almost doubling from £155,000 in 2009 to over £295,000 in 2022. The nil-rate IHT band remains at £325,000 and the residence nil-rate band at £175,000, with the residence nil-rate band taper continuing to start at £2m.
Qualifying estates will still be able to pass on up to £500,000 and the qualifying estates of a surviving spouse or civil partner can utilise any unused allowances and potentially pass on up to £1m before incurring any IHT liabilities.
Capital Gain Tax on Probate Estates
There was also additional bad news for tax on estates as the Government announced that the tax-exempt Capital Gain tax (CGT) sum will be slashed from the current £12,300 to £6,000 from April 2023, and a further 50% cut to £3,000 from April 2024. This will have a significant impact on Estates where properties or assets sell for higher than ‘date-of-death’ values as Executors have a single CGT allowance which can be used during the tax year of the date of death or the two following tax years.
Executors are entitled to a Capital Gains tax allowance that is separate from their personal CGT allowance, meaning they can dispose of Estate assets with a gain of up to CGT threshold within the estate administration period, and not pay any CGT. It has been confirmed that the Executor allowance remains at the single CGT rate, this will affect many more estates. Further, where the chargeable disposal is a residential property, there are only 60 days to report and pay the tax which can be a challenge for personal representatives.
By reducing the annual exempt amount, the Governments estimates that for the year 2023 to 2024 around 500,000 individuals and trusts per year could be affected, increasing on a cumulative basis to 570,000 in 2024 to 2025. Of this group, by 2024 to 2025 it is estimated that 260,000 individuals and trusts will be brought into the scope of CGT for the first-time.
For further information or legal advice, please contact our Wills, Trusts & Estate team.