October 28th 2024.
Possible Human-Like Rewrite:
As Wednesday approaches, the public eagerly awaits the unveiling of Sir Keir Starmer's first Budget as the leader of the Labour government. Among the expected changes, inheritance tax is one area that may see some adjustments.
Although it may not be a major source of revenue for the Treasury, bringing in only about £7.5 billion or 0.3% of the national income, Chancellor Rachel Reeves may still be tempted to increase it slightly. But what exactly is inheritance tax and how likely is it to affect the average person? The good news is that most people will not be impacted by this tax, as it is only paid by approximately 4% of estates belonging to the wealthiest individuals in the country.
The thresholds for inheritance tax are relatively high and there are various rules and limitations in place that people can take advantage of. Therefore, it is unlikely that Reeves will make any drastic changes to these regulations. However, it is still important to understand the basics of inheritance tax.
Currently, the standard rate of inheritance tax is 40%, applicable to estates with a value exceeding £325,000. However, as with most things related to taxes, there are additional details that complicate the matter. For instance, if you leave your assets to your spouse or civil partner, no inheritance tax is paid. This does not apply to long-term partners, as marriage or civil partnership is required for this exemption. Additionally, any assets left to charities or community amateur sports clubs are also exempt from this tax. Moreover, if you pass on your home to your children or grandchildren, the total threshold increases to £500,000.
Furthermore, any unused inheritance tax allowance can be transferred to your spouse or civil partner. In other words, if a married couple has a combined estate of £1 million and the husband uses his full £500,000 allowance by leaving everything to his spouse, she can then pass on the entire estate to their children without incurring any inheritance tax.
Another interesting aspect of inheritance tax is the "gifts out of surplus income" rule. This rule allows individuals to give away money without being taxed, as long as it comes from their income and does not affect their standard of living. However, the Chancellor may consider tightening this rule to generate more revenue, as it has reportedly saved around 500 wealthy families a total of £30 million in the past year.
Another potential change could be the reduction of agricultural and business relief for inheritance tax, as suggested by the Guardian. However, nothing is set in stone until it is officially announced in the Commons on Wednesday. As always, the public can only wait and see what the future holds for inheritance tax.
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