A HUGE change to inheritance tax to close loopholes and raise £3billion has been revealed by the Chancellor.
Rachel Reeves revealed the changes in her Autumn Statement.
Britain’s Chancellor of the Exchequer Rachel Reeves delivers her Autumn budget statement in the House of Commons[/caption]
Rachel Reeves said: “Only 6% of estates will pay inheritance tax this year. I understand the strongly held desire to pass down savings to children and grandchildren.
“So I am taking a balanced approach in my package today. First, the previous government froze inheritance tax thresholds until 2028. I will extend that freeze for a further two years, until 2030.
“That means the first £325,000 of any estate can be inherited tax-free… rising to £500,000 if the estate includes a residence passed to direct descendants…. … and £1million when a tax free allowance is passed to a surviving spouse or civil partner.”
Inheritance tax is currently charged at 40% on the property, possessions and money of someone who has died if they are worth more than £325,000.
Fewer than one in 20 estates currently pays death duties as many estates fall below this threshold.
But the tax raises about £7billion a year for the Government.
There are several exemptions and reliefs which mean you do not need to pay inheritance tax, including gifts or giving to charity.
There are also exemptions if you leave land or pasture which is used to rear animals or to grow crops through agricultural relief.
How much is inheritance tax?
There’s normally no Inheritance Tax to pay if the value of your estate is below the £325,000 threshold.
You can also avoid paying the tax if you leave everything above the threshold to your spouse, civil partner, a charity or a community amateur sports club.
If your estate’s value is below the £325,000 limit, you will still need to report it to HMRC.
If you give away your home to your children – including adopted, foster or stepchildren – or grandchildren when you die, your inheritance tax threshold can increase to £500,000.
This is called the “main residence” band.
If you’re married or in a civil partnership and your estate is worth less than the upper limit, any unused threshold can be added to your partner’s when you die.
This means their threshold can be as much as £1million.
The standard inheritance tax rate is 40% – but it is only charged on the part of your estate that’s above the threshold.
For example, if your estate is worth £500,000 and your tax-free threshold is £325,000.
The inheritance tax charged will be 40% of £175,000 (£500,000 minus £325,000).
BRITAIN’S MOST MEMORABLE BUDGETS
Today is the first Labour budget for 14 years – and the first ever to be delivered by a female Chancellor.
Brits are bracing for a raft of tax hikes as Rachel Reeves tries to plug the “£22billion black hole” she says she’s found in government accounts.
Here are five other budgets which have caused a stir over the years.
1979 – Geoffrey Howe, Conservative
Margaret Thatcher’s Chancellor Geoffrey Howe slashed both the top rate of income tax and the standard rate.
He also doubled VAT – shifting the tax burden from income to consumption in a huge change for Brits.
Howe also eased controls on foreign exchange in a bid to control inflation.
The budget signalled a massive break from the last Labour government and set the pattern for decades to come.
1988 – Nigel Lawson, Conservative
Nigel Lawson (dad to domestic goddess Nigella) massively slashed income tax again.
The deputy Commons speaker twice cleared the chamber amid noisy protests from Labour MPs slamming the tax cuts.
Lawson also set off a property bonanza by announcing an end to double mortgage tax relief for couples buying homes.
1993 – Norman Lamont, Conservative
In March 1993 the economy was still reeling from Black Wednesday, when the pound crashed out of the European exchange rate mechanism.
Lamont announced tax rises including VAT on domestic gas and electricity.
Later that year Lamont’s successor Ken Clarke froze personal tax allowance and brought in stealth taxes on insurance and plane passengers.
The Lamont and Clarke budgets marked the end of the Tories’s scything tax cuts – and set the stage for Labour’s return to office in 1997.
2002 – Gordon Brown, Labour
Brown raised national insurance by a penny on the pound to fund higher spending on the NHS.
The future PM had fretted over a possible backlash from voters who had re-elected Labour in 2001.
But he managed to pull off the largest rise in health spending in the history of the NHS.
2009 – Alistair Darling, Labour
Labour’s last budget before today came amid the credit crunch and soaring unemployment.
Darling ramped up taxes and borrowing in a bid to fill up draining Treasury coffers.
Tory leader David Cameron blasted Labour’s ‘utter mess’ – and was in power a year later.
2022 – Kwasi Kwarteng, Conservative
Kwarteng unveiled his economic package less than a month after becoming Liz Truss’s Chancellor.
Technically, it was a fiscal statement rather than a budget – but it turned out to be just as seismic.
Rising Tory star Kwarteng announced £45billion in tax cuts including a drop in all rates of income tax.
Markets took frights and the pound went into freefall before the Bank of England waded in to stop a run on UK pension funds.
Mortgage rates soared and Kwarteng was out of the job just three weeks later.
