Analysts are urging Chancellor Rachel Reeves to introduce inheritance tax (IHT) reform in tomorrow's Spring Statement to relieve the financial burden on taxapyers from last year's Autumn Budget.
Law firm, Broadfield, which has offices in Reading, Southampton, Cambridge, and London, is is calling on Chancellor Rachel Reeves to reduce the seven-year rule to just four years.
Furthermore, they also want an increase to the £325,000 threshold and a reversal of planned changes affecting family-owned businesses.
Broadfield argues these reforms would simplify the tax regime whilst better reflecting current property values. The firm suggests the Government should pivot away from "squeezing inheritance tax further" and instead offer reforms that "encourage and reward growth".
Rachel Reeves is being asked to consider reform to inheritance tax
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Sheilagh Magee, a partner in Broadfield's Reading office, explained the rationale behind reducing the seven-year rule attached to the levy.
"Given that IHT has been left unreformed for decades, the Government should respond by making the seven-year rule more generous, reducing it to just four years," she said.
"This would help those who are old or unwell pass on wealth without fear of an IHT penalty." Currently, gifts over the £325,000 threshold made more than seven years before death are exempt from IHT.
Magee suggests adopting a four-year rule and scrapping the tapered relief that applies to gifts made between three and seven years before death.
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Inheritance tax is often dubbed 'Britain's most hated tax'GETTY According to the firm, this would "simplify the IHT regime considerably while maintaining an attractive exemption." Magee also highlighted the urgent need to increase the £325,000 inheritance tax threshold.
This threshold has remained fixed for over 15 years, despite significant changes in asset values. "Property remains the most valuable asset most people own, and over the past 15 years, property values have increased by more than 40 per cent," she noted.
As a result, more homeowners are being drawn into the inheritance tax net than ever before. "The Government should raise the threshold to better reflect the realities most homeowners now face," Magee argued.
Broadfield has also highlighted recent Budget changes to Business Property Relief (BPR) affecting family businesses.
"The Autumn Budget has pitched farmers against the UK government following changes to IHT," said Magee. She warned these changes would "hit family-owned businesses hard" by making those with turnover exceeding £1million subject to inheritance tax.
"This will likely mean that many family-owned businesses will need to be broken up to meet IHT obligations," Magee cautioned.
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Chancellor Rachel Reeves will announce her Spring Statement on WednesdayPOOL"Such an outcome is completely at odds with the Government's pro-growth agenda."
Broadfield recommends the change should be "delayed until its impact is fully understood—or better yet, scrapped entirely."
"The Government needs to use the tax landscape to incentivise and encourage growth while raising revenue," Magee stated.
"While individuals and businesses appreciate the challenges the Government faces, there is a strong belief that the pendulum has swung too far in the wrong direction."
