What you need to know about inheritance tax as chancellor mulls changes in Autumn Budget

Inheritance Tax receipts have soared to £4.3 billion in the first half of this year, a rise of £400 million compared to the same period last tax year, according to the latest figures from HMRC. These statistics were released just days before Rachel Reeves' Autumn Budget on October 30, where the Chancellor is reportedly contemplating a significant Inheritance Tax overhaul.

Inheritance Tax, which is sometimes levied on the estate (property, possessions and money) of a deceased person, is charged at a rate of 40%. However, less than 5% of estates are liable for this charge, meaning that the majority of people are not affected by Inheritance Tax.

The tax may be applicable if the value of the estate exceeds £325,000, with the tax only due on the portion of the estate above this threshold. The reason why so few estates pay it is due to various exemptions and allowances.

For instance, there is usually no Inheritance Tax to pay if everything above the threshold is left to your spouse or civil partner, or if you leave your home to your children or grandchildren, your threshold can increase by an additional £175,000 to a total of £500,000. .

Couples in a marriage or civil partnership can also pass on their unused allowance to each other, meaning that if they use their late partner's allowance and leave their home to their children or grandchildren, their Inheritance Tax threshold increases to £1 million. According to the BBC, the Chancellor is considering reforms to Inheritance Tax, although the specifics of the potential changes and the number of people who would be affected are unclear, reports the Mirror.

Rob Morgan, Chief Investment Analyst at Charles Stanley, commented: "Thanks to frozen nil-rate bands and asset price growth IHT receipts have been hitting record highs in recent years, soaring to £7.5billion in the 2023/24 tax year. This is set to rise in the current tax year too. Receipts from April 2024 to September 2024 are £4.3billion, which is £0.4 billion higher than the same period last year."

"Despite this, it seems inevitable Inheritance Tax (IHT) will be in the Chancellor's Budget crosshairs given the extent of the government's stated funding gap. With the 'baby boomer' accumulation of wealth increasingly being passed to the next generation inheritance tax rules are being closely examined. While it's doubtful the rate of inheritance tax will be increased – it's already at a very high at 40% – the various exemptions and gifting rules used to mitigate, and in some cases eliminate, the tax will surely fall under the microscope."