Will inheritance tax change in the 2024 Spring Budget?

The take from inheritance tax (IHT) keeps growing, with receipts on track for another record-breaking year.

With receipts this year hitting £6.3bn so far, it looks like a repeat as long-term house price growth and frozen thresholds drag more families into the net.

This article isn't personal advice. Tax rules can change, and any benefits depend on your circumstances. If you're not sure what's right for you, ask for financial advice.

Will inheritance tax be cut in the Budget?

There could be a twist on the cards. In the run up to last year’s autumn statement, rumours were flying that the chancellor was looking to slash the headline rate of IHT to 20%. And again, speculation is that we might actually see it happen this time.

But the jury is out on whether this is the best way to go.

IHT isn’t well-liked, but it’s only paid by about 4% of estates right now. Cutting the main rate could be seen as only benefitting richer estates who would obviously welcome a cut in their tax bill.

Could inheritance tax be binned altogether?

It’s possible, but unlikely. IHT is a great money maker for the government, so it’s doubtful it’ll disappear altogether.

A cut or the abolition of IHT might also encourage people to keep hold of their assets instead of thinking about distributing them to loved ones.

How else could inheritance tax change?

Increasing other thresholds – like the gifting allowances – could also help. These have been frozen for years and if they were to go up, it could encourage more people to think about how to help support family members in their lifetime.

For instance, you can currently give away up to £3,000 per year without incurring an IHT liability. You can also gift £5,000 to a child or £2,500 to a grandchild or great grandchild if they get married or form a civil partnership.

Revisiting these allowances could give people more flexibility to help loved ones build their financial resilience.

You should also look at other ways to pass on more to your beneficiaries, like using your pension or setting up a trust.

Everyone’s situation is different. So it’s important to look at your gifting strategy as part of your wider financial plan. That way you can make sure you can afford to gift your money away instead of ear marking it for something else like long-term care.

Financial advice could help take everything in consideration and understand if and how IHT would affect how much you can pass on.

What else could change?

Other ideas for reform include raising the long-standing £325,000 threshold for becoming liable for IHT.

Upping it to £500,000, or combining it with the residential nil rate band, might have a wider impact. It wouldn’t only cut the bill for larger estates, but also potentially lift some smaller estates out of having to pay IHT at all.

This would also help people who’ve passed the threshold because of growing house prices and found themselves lumbered with a nasty tax bill. And help ease the burden falling disproportionally on single people who don’t have the benefit of a partner’s allowances.