Potential Changes to Inheritance Tax Under Labour: What You Need to Know
Chris Keenan, Partner, Private Client Department, HK Law
As the political landscape shifts, the potential for changes to Inheritance Tax (IHT) regulations under the new Labour government has generated significant interest and speculation.
While Labour’s manifesto does not explicitly detail changes to IHT rates, it signals an intent to close tax loopholes and end offshore trusts used for IHT avoidance.
Here, Chris Keenan, Partner at HK Law, explores the possible implications for those with large estates, including farms and business properties, and offer guidance on how to prepare for these potential changes.
Labour’s Manifesto and Inheritance Tax
The Labour Party has pledged to address tax avoidance by ending the use of offshore trusts, a move aimed at ensuring the wealthy pay their fair share of taxes.
This policy stance suggests that significant reforms to IHT could be on the horizon, potentially affecting various reliefs and planning mechanisms currently in place.
Speculated Changes to Reliefs and Planning Mechanisms
1. Agricultural Property Relief (APR):
APR currently provides relief from IHT on qualifying agricultural property, helping to ensure that farms can be passed down through generations without incurring prohibitive tax liabilities.
Speculation indicates that Labour may look to reform APR, potentially limiting the eligibility of assets and their value that qualify for this relief.
This could have profound implications for farming families, who may face increased tax burdens and the potential need to sell parts of their estates to meet IHT obligations.
2. Business Property Relief (BPR):
BPR offers relief on business assets, including shares in unlisted companies and those listed on the Alternative Investment Market (AIM).
There is speculation that Labour could amend or abolish BPR, particularly as it applies to AIM investments.
Such changes could significantly impact ordinary investors who have utilised AIM shares as part of their IHT planning strategy, potentially leading to higher tax bills and reduced attractiveness of these investments.
3. Deeds of Variation:
Deeds of Variation allow beneficiaries to alter the distribution of an estate within two years of death to achieve more favourable tax outcomes.
There has been much speculation about Deeds of Variation through most Government changes in recent times but all have steered away from removing or restricting the current potential tax benefits of Deeds of Variation. Therefore it is of no surprise to hear that Labour may revisit or withdraw this mechanism, which would reduce the flexibility available in estate planning, though it seems unlikely at this time to be the key focus of the new Government.
Implications for Estate Planning
The potential reforms discussed could lead to substantial changes in how estates are managed and passed on. For those with large estates, including farms and business properties, the impact could be particularly significant.
It is advisable to review and potentially revise estate planning strategies in light of these possible changes.
Given the current speculation and the importance of being prepared, HK Law recommend the following steps:
- Review Your Estate Plan: Ensure your current estate plan reflects your wishes and takes into account potential changes to IHT reliefs.
- Seek Professional Advice: Consulting with experts can provide clarity on how potential reforms could impact your specific situation and help in devising strategies to mitigate adverse effects.
- Stay Informed: Keep abreast of developments and official announcements regarding IHT policies.
While the details of potential IHT reforms under a Labour government remain speculative, it is prudent to prepare for possible changes.
At HK Law, our Private Client team is equipped to help you navigate these uncertainties and safeguard your estate’s future.
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