Duncan & Toplis comment on the rumoured changes in tomorrow’s budget

Head of Probate, Graeme Hills says that inheritance tax could be set to change:

“While inheritance tax is a divisive issue, there is speculation that the government may change the rules on what assets count toward the current taxable estate thresholds, potentially changing business property relief and potentially scrapping agricultural property relief.

Presently, inheritance tax forces estates to pay 40% tax on assets worth more than a £325,000 threshold (or £475,000 if the asset is a home that’s left to children or grandchildren, or £950,000 if the tax break is inherited by a spouse or civil partner). At present, many business assets, including farmland, can be excluded from the calculation of taxable worth, but it’s possible that may change.

The removal of inheritance tax relief on agricultural land would be unpopular among my farming clients but I think it’s one of the more likely rumoured announcements for this year’s budget.

This could lead to major changes in how land is managed and run, with landowners being less inclined to invest in farmland to reduce inheritance tax and this would have a knock on effect for tenant farmers. However, most active farms would not be affected as they’d be able to retain their tax relief under Business Property Relief (BPR). Unfortunately, this too is rumoured to change. While it’s unlikely to be scrapped altogether, it could be changed so it no longer applies to assets such as shares. This would prevent the practice of investing in businesses simply as a means to avoid inheritance while still allowing the relief to encourage genuine business investment, which is what it was created for.

It’s also possible that BPR could be capped to £5m or £10m, allowing smaller investors to benefit from the relief but taxing the bigger investors, which could be a more widely supported change that could raise significant funds for the treasury.”

Director, Christine Newitt hopes for a reform of pension tax relief:

“Pension tax relief has been a target for many chancellors over the years and it appears that the restriction of relief from 40% to 20% is being considered again by the Treasury.

At one time a maximum of £225,000 could be put into a pension plan and tax relief obtained at the highest rate of tax.

This has reduced significantly over time with the maximum available for tax relief being £40,000 and for the very high earners this is reduced to £10,000.

This seems straight forward until you consider the complexity of the legislation that has arisen around the restriction of pension tax relief. Relief is restricted for some taxpayers by calculating a tax charge which impacts some sectors significantly.

This has been of particular note for doctors within the NHS pension scheme where I have seen incidents of the tax charge being in excess of the doctor’s earnings – surely this cannot be equitable?

Whilst this example is not common place, it clearly indicates a system that is broken and I for one would welcome some reform in this year’s budget to produce a sensible and equitable level of tax relief to encourage saving for retirement, where taxpayers have certainty around their tax liabilities and are not tripped up by over complex legislation.”