Rishi Sunak is poised to announce his Budget on Wednesday as the country reels from the economic impact of the coronavirus crisis. Reports are sugg
Rishi Sunak is poised to announce his Budget on Wednesday as the country reels from the economic impact of the coronavirus crisis. Reports are suggesting it is likely the self-employed and pension pots could be targeted to raise funds after the UK economy suffered its biggest slump in over 300 years. Mr Sunak is yet to shed any light on whether inheritance will be affected or not in his Budget – but experts have discussed what reforms could be undertaken. MPs on the all-party parliamentary group for inheritance and intergenerational fairness last year suggested putting a limit on how much can be given away tax-free in someone’s lifetime.
Dhana Sabanathan, a partner at advisers Winckworth Sherwood, warned this could affect how much money parents or grandparents pass on to their loved ones.
She said: “The current rules do not place a limit on the amount a person can gift away during their lifetime.
“This means that it is possible for significant wealth to be passed from one generation to another, with no inheritance tax due.
“By abolishing these rules, the proposals seek to catch more gifts, but suggest the tax rate should be lower.”
It has also been suggested that Mr Sunak could abolish the potentially exempt transfers system (PET) – which allows individuals to make gifts of unlimited value to friends and family members without being hit with any inheritance tax liabilities if you live for a further seven years.
Debbie Wilson, a director at tax advising firm Hillier Hopkins, said: “We can expect change in 2021, perhaps with an immediate inheritance tax charge on such gifts.
“It would be an easy change to make, facing limited opposition and could quickly be introduced.”
Experts have also said that potential changes to capital gains tax could impact inheritance.
Lesley Davis, partner in the private client team at law firm Shakespeare Martineau, also warned of the abolishment of PET in November, and said inheritance and capital gains are “easy hits”.
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She said: “Both are easy hits, as exemptions can simply be withdrawn or removed. However, doing this leaves the taxpayer fully exposed.
“If the potentially exempt transfer exemption is removed, inheritance tax will become payable on any gifts over just a few hundred pounds in value.
“More worryingly, if spouse exemption on death is cut then families will have to sell their assets to pay the tax owed. Or, if the nil-rate band of £325,000 is reduced, a tax levy at 40 percent will apply to the inheritance of a deceased married couple’s children.”
She said that those looking to mitigate the impact of any potential changes could make gifts into a trust to offer protection.
The Times reports this week that pension pots will be targeted by a “stealth tax”.
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The Chancellor is expected to announce that the lifetime allowance, the amount people can build up in their pension pot before incurring punitive tax charges, will be frozen for the rest of this parliament at just over £1million.
This change would see more savers pushed over the threshold – facing a 25 percent levy on additional income from their pension pot.
The freeze means more people risk being dragged over the threshold and could face a 25 percent levy on any additional income from their pension pot, rising to 55 percent if they choose to draw down a lump sum.
The changes would result in 10,000 people with a larger pension paying more than £22,000 extra by 2024.
Experts have estimated that the policy could raise £250million a year for the Treasury.