Could we see changes to inheritance tax rules?
In the run up to Budget 2020, we asked our MHA Moore and Smalley tax experts to preview the first big moment of Rishi Sunak’s chancellorship. In part two, Colin Abrahams, tax partner in our Manchester office, shares his thoughts on what we might see.
Two aspects of the forthcoming budget that have filled the airwaves have been National Insurance thresholds and Entrepreneurs Relief.
The uplift in the National Insurance threshold was one of the main pledges in the Conservative election manifesto. The overall objective is to bring the NI threshold in line with the income tax personal allowance. The government have already flagged their intention to raise the NI threshold for 2020/21 to £9,500, as a first step in this move, saving affected employees £104 for the year.
Regarding Entrepreneurs Relief, the government has said that this tax relief is not working as it should and they plan to review and reform it. The big question is whether this will be an abolition or a reform.
I do not believe that Entrepreneurs Relief will be abolished, but I expect a significant re-tuning to tighten up the rules so that it is more purposefully focussed on those taking genuine entrepreneurial risk. I would be surprised to see the Entrepreneurs Relief lifetime limit reduced to as little as £1m (as suggested in the media) but could see it being halved. I would also not be surprised to see some type of working time requirement being introduced.
Given that the Conservatives have long expressed a desire to reduce the Inheritance Tax burden, if not abolish it, I wouldn’t be surprised if there were some changes to the IHT rules to compensate for rising house prices and to counter the ideology of it reflecting double taxation. Possible changes could include lifting the £325,000 nil rate threshold or reducing the seven-year time limit on which Inheritance Tax is applied to gifts – perhaps down to five years.
For the new government, it would be an extremely bold move for the chancellor to abolish Inheritance Tax altogether, especially as this would be deemed to be helping the wealthy and would likely be seen as a ‘smack in the face’ for voters in traditionally working class areas who supported the Conservatives in the December election. I believe we will see a chancellor looking to ‘do right’ by those predominantly Northern constituencies who gave their support
Click here to read part one of our four-part series in the run to the Budget announcement.
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