Wealth and Estate Planning Considerations under a Labour Government

During the election campaign, Labour said they would remove the VAT exemption from private school fees, and draft legislation had already been prepared. This heads off the workaround many schools were looking at of fees being paid in advance.

While it looks likely that VAT exemptions on private school fees will be removed, meaning more is payable, Educator Trusts can still (for now) be used to save Inheritance Tax (IHT).

A deeply unpopular tax, often described as 'voluntary', IHT has been bringing in more and more money for the Government coffers, with the IHT take in 2023/24 being £ 7.5 billion.

IHT thresholds are already frozen until 2028, but there is talk about Labour reforming certain aspects of IHT.

We can look at a 2020 All-Party Parliamentary Group report for ideas which suggested:

• IHT should be abolished in its current form, and a flat (10% or 20%) charge should be introduced.
  
  This does not seem to be talked about as an option that the Government may pursue, and a 40% tax charge is more lucrative than a 10/20% charge, so it is unlikely that IHT will be overhauled in its entirety.
  
  
• Agricultural Property Relief (APR) and Business Property Relief (BPR) be scrapped.
  
  Unlike the previous suggestion, there is much talk that Labour is likely to scrap both APR and BPR. This would mean many farms and businesses would need to be sold to fund IHT, even if payments are still allowed in instalments over 10 years. A softer option suggested is removing BPR on the quoted AIM shares.
  
  
• A lifetime gifting allowance of £30,000 will be introduced, with a tax-free £325,000 allowance on someone's death estate.
  
  The death allowance would remove the additional top-up available to people who pass their main home to lineal descendants, meaning that more IHT is payable.
  
  Lifetime gifting could also be ripe for the picking, with gifts currently falling outside someone's estate for IHT purposes after 7 years, and the rate of IHT on a gift reducing if someone dies 3 or more years after making the gift.
  
  
• Remove the CGT Uplift.
  
  When someone dies, the assets in their estate are re-valued for CGT to the date of death value.
  
  Removing this uplift while keeping the 40% IHT rate would mean a tax of up to 64% on an asset.
  
  
• Pension funds to be taxed at the flat rate (of 10/20%).
  
  Pensions passing from one person to another on death currently do so free of IHT.
  
  There may be income tax charges for withdrawals by the beneficiary, but if someone dies before they reach 75, there isn't even any income tax to pay.
  
  Rumours suggest that Labour are looking to include pension funds when assessing someone's taxable estate on their death, and it is anticipated that this would be at the full 40% rate currently in place.

In recent years, the Capital Gains Tax Annual allowance has become progressively smaller, currently up to £3,000, rather than over £12,000 a couple of years ago.

Rumours circulate that the CGT rates, currently between 10 and 24%, would be brought into line with a person's marginal tax rates, meaning that the tax on certain gains may more than double to 45%.