Posted: 22 / 02 / 2024

There have been rumours of some sort of meaningful reform to Inheritance Tax (“IHT”) for some time, not least in the lead-up to the 2023 Autumn Statement.

In the end nothing came of these rumours in the Autumn Statement, but we were left with the suggestion that maybe the Chancellor was saving this for the coming 2024 Budget; this being closer to the expected general election later in 2024.

However, hopes of significant tax cuts this year have been played down in recent weeks as various facts, figures and statistics have become available. Despite this, might IHT still be on the radar? As a tax, it does not bring in much revenue for the Government, approximately £7.2billion at the last count. Therefore, cuts to IHT could make some good headlines for the Government ahead of an election without costing the Chancellor too much.

The rumoured changes

So, if IHT were to see some changes, what might those changes be?

  • Abolish IHT altogether? Possibly, but unlikely at this stage as being too expensive.
  • Cut the rate payable on death from 40% to 25% or 20%? More affordable and easy to implement.
  • If the rate payable on death did change, would the rate for chargeable lifetime gifts (20%) or the rate payable by Trusts for periodic (10 year) charges or on distributions of capital also change?
  • Replace the much-maligned and overly complex Residence Nil-Rate Band £175K, (only available when leaving a home to one’s descendants in an estate worth up to £2million) with an increased basic Nil-Rate Band of £500K, available to everyone?
  • Extend the basic Nil-Rate Band even further?
  • Change the required survival period on Potentially Exempt Transfers (“PETs”). Currently a person must survive 7 years, from making a PET, for it to drop out of their estate completely although, it does begin to reduce after 3 years. It has been proposed before that the rules are too complicated and that they should be replaced by a fixed 5-year period. Whilst simplification would be welcomed, having to survive 5 years before any reduction to one’s estate is achieved was not looked on favourably last time around. Maybe there is scope to reduce it to a fixed term of 3 years, keeping everybody happy?
  • There is also plenty of scope to tweak the rules around Domicile, non-domiciled spouses, and property but the view here is that these subjects would be too complex to tackle at this time, other than by a complete abolition of IHT of course.

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David Evans
Head of Private Clients

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Sarah Richards
National Head of Tax

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Omar Majeed
Corporation Tax Manager

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Graham Marsh
Personal Tax Manager

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