On the 17th of August 2022, the Chancellor Jeremy Hunt, delivered the autumn budget. Within this budget, various plans were set out over the next few years which are likely to affect many tax payers and those dealing with the administration of an estate or trust. The purpose of this article is to set out the key points from the budget which relate to Private Client matters.
The Chancellor has announced that the current Inheritance Tax (IHT) thresholds will be frozen for two more years. The thresholds were previously frozen until April 2026, and so the extension will now last until April 2028.
The nil rate band for IHT purposes has stood at £325,000 since 2009. There is also an additional residential nil rate band which stands at £175,000 (which can be claimed when an estate includes a residential property and certain conditions are met). If a person’s estate is valued at more than the available IHT thresholds, then their estate will be liable for IHT when they pass away.
Between inflation and the rise in house prices over recent years, it is likely that many estates may become taxable following the freeze.
There are various IHT exemptions, allowances and reliefs available which can assist to mitigate IHT charges. Therefore, taking appropriate estate planning advice can be particularly advantageous.
Capital Gains Tax
In relation to Capital Gains Tax (CGT), the Chancellor stated his plans to reduce the annual exemption available in the 2023/2024 and 2024/2025 tax years.
Currently, the annual exemption for an individual is set at £12,300 for gains made in the 2022/2023 tax year. Any gains made above this exemption are taxable for CGT purposes. These exemptions are going to be reduced as follows:-
- 2023/2024 – annual exemption of £6,000.
- 2024/2025 – annual exemption of £3,000.
Due to the reduction in the annual exemption, many more individuals and estates are likely to become liable for CGT on any capital gains made in the next two tax years. Capital gains are most common in connection with the sale of properties, shares or other assets.
The Chancellor has made various amendments to the current Income Tax regime, including lowering the additional rate income tax threshold from £150,000 to £125,140, which will result in more tax payers paying the additional rate of 45%. The budget also sets out plans to reduce the current annual dividend allowance from £2,000, to £1,000 in 2023/24 and £500 to 2024/2025.
These changes are likely to cause additional Income Tax to be payable by people with a higher income but also for people who receive dividends as part of their income, whether this is from company ownership or through investments.
Our advice would be to speak with an accountant in relation to any queries in connection with Income Tax matters.
Care Fee Cap
The Government had previously planned to introduce a lifetime cap of £86,000 for the payment of care home fees from October 2023. Under these plans, the cap represented the maximum amount that an individual would need to spend on personal care during their lifetime.
The Chancellor has announced that the cap will not take effect for another two years and will therefore instead come into effect in 2025.
The current care fee regime means that anyone who requires care and holds assets of more than £23,250 will pay for their own care fees in full. The amount payable is currently uncapped.
The various changes announced by the Chancellor are likely going to cause additional tax to be paid by many individuals and estates. It is important for anyone dealing with either their own tax matters, or the tax affairs of an estate or trust, to ensure that they are aware of the changes and are paying tax where appropriate.