Future gazing and succession planning

On Wednesday 27 December 2023 the Daily Telegraph had an eye-catching post-Christmas headline for its readers – “No 10 plans to end IHT ahead of election”!

Reading the article itself, that didn’t quite seem to be the case. There appear to be three tax cuts being considered by the Conservatives ahead of the spring budget:

  1. Increasing the threshold at which people start paying the 40% rate of income tax
  2. Reducing the basic 20% rate of income tax
  3. Scrapping inheritance tax (IHT)

The third option seems the most drastic but this, apparently, is the appeal – according to the article it is “the least likely of the three moves to be matched by Labour”. Well, yes, they do seem unlikely to scrap IHT!

In fact, on 4 January 2024 Keir Starmer confirmed that he was “fundamentally opposed” to what the Conservatives were “pretending they are going to do” (abolish IHT). Labour have since confirmed that if the Conservatives cut IHT, they would reverse that cut when in power.

The Guardian has since reported that “Downing Street has pushed back against renewed speculation that ministers are thinking about scrapping IHT… with a No 10 source saying the idea was “just speculation”.”

The spring budget is due on the 6 March 2024 (mark it in your diary now!) and no doubt in the weeks and days leading up to the big day there'll be a mass of speculation and leaks, making our life as private wealth advisers fun and interesting!

There was of course similar speculation around the most recent autumn statement, again starting with rumours that IHT was to be abolished, and then watered down to hints that the nil rate band might increase or similar.

In the end the autumn statement had very little impact on succession planning. Tax cuts were limited to reductions in National Insurance, with no changes to income tax rates or capital gains tax. There were no increases in the nil rate band, which has remained at £325,000 since April 2009, or the residence nil rate band of £175,000, and as matters stand, they'll remain the same until at least April 2028.

Given the Telegraph’s late Christmas present of a headline, perhaps the spring budget will be more impactful in terms of succession planning – we shall see!

The political landscape

Succession planning is not just about tax mitigation. It's about understanding what an individual or family wishes to achieve with their wealth and assets, who they ultimately wish to benefit and what protective measures and tax planning opportunities are available and appropriate. For anyone considering succession or estate planning in 2024, the political landscape is highly relevant.

The key thing to take account of for anyone considering succession planning in the next 12 months is, of course, the likelihood that we will either have a general election or one will have been called by, at the latest, 17 December 2024. Rishi Sunak has apparently ruled out an election in 2025, with the latest noises from Westminster suggesting an autumn election, as the Conservatives hope to improve their standing in the polls in advance of any election. 

A change in government (or not, for any very optimistic Conservatives out there), is clearly going to impact, perhaps significantly, the tax legislation landscape and, therefore, the succession planning options and opportunities. The spring budget may of course also impact on taxation and succession planning in the shorter term, especially if IHT is “scrapped”!

Tax avoidance/mitigation/planning (delete according to preference) often becomes a political football in the run up to any general election, so it'll be interesting to see what promises/threats are made in the two main parties’ manifestos. It's probably reasonable to assume that the Conservatives will offer up cuts to the IHT rate and/or an increase in the nil rate band allowances, as well as potentially cuts to the income tax rate and the corporation tax rate.

Prediction markets

At the time of writing, the Conservatives are being given only around a 10/1 chance by bookies of forming the next government with an overall majority. In terms of horizon scanning, prediction markets are being used more frequently by individuals and investors. A prediction market is effectively a market where individuals can bet (using real or pretend money) on the occurrence of events in the future. As prediction markets purportedly aggregate the information and beliefs of those individuals, there is a school of thought that sees them as being more accurate than, say, betting odds.

At the time of writing, one prediction market has the likelihood of a Labour majority at 75.76%, no overall majority at 17.54% and a Conservative majority only at 6.45%. Keir Starmer is currently on 87.72% to be the next Prime Minister and the most likely date for the general election is thought to be between October and December 2024 (69.93%).

(Interestingly, Andy Burnham is the favourite to be the next Labour leader (on 15.62%), with Kemi Badenoch the favourite for next Conservative leader on 26.32%. Donald Trump is at 38.46% to be the winner of the next US Presidential election, with Joe Biden trailing behind at 31.75%).

Any promises in the next manifestos must be viewed in that context. To put another way, any tax “giveaways” in the spring budget (scrapping IHT!) could be swiftly rolled back by the next government (likely to be Labour).

Keir Starmer and Labour have so far been relatively quiet about what tax changes Labour may want to make, although the “prudent spending” promised and improvements to public services may require revenue raising. Tax cuts are not likely. One notable and substantial change which has been heavily trailed may be to remove the non-domiciled tax status, which is a fundamental part of estate and tax planning for wealthy international individuals who are resident in the UK. 

Labour do seem to have ruled out any “mansion tax” or even higher rates of income tax or capital gains tax, but IHT and importantly the reliefs available at present are likely to be under careful consideration. Business relief and agricultural property relief are very generous reliefs indeed, allowing up to 100% of value to pass free of inheritance tax.

The key then may be to take action sooner rather than later, while these reliefs are still available. This is especially important and relevant for entrepreneurs and business owners, who should consider what succession planning opportunities are here now, that might disappear in future. 

Succession planning in uncertainty

As mentioned above, the spring budget will be key – what changes will the Conservatives make to taxes in what could be their final budget (for some time)? If IHT is changed, will we have an odd few months between the spring budget and the next general election where we can take advantage of cuts to the “most hated” tax, only for those changes to be reversed if (when?) Labour take power? Heady times indeed for private wealth advisers if so!

Fingers crossed that we get sensible changes to IHT in the spring budget – perhaps an increase in the nil rate band and the abolition of the residence nil rate band, which only applies to those with children. Those changes would be reasonable and straightforward, with minimal impact on the tax take from IHT, and, therefore, may not be so readily reversed by a Labour government.

The state of the world economy and the assessment of risk will be fundamental to succession planning. When is the right time to pass on control and management of assets? Who to? Where to? What else is happening in the world in light of war in Ukraine and potentially the Middle East? What about the impact of AI on the economy and the family’s own business or investments?

Succession planning doesn’t happen in a vacuum. Although the tax benefits in succession planning can be very important, often it's asset protection and preservation that's the driver for many people – keeping wealth for (and sometimes protecting it from!) the next generation.

There are very real tax benefits around IHT - the spouse exemption, business relief and agricultural property relief. Owners of valuable trading businesses and/or farmland/woodland currently have the benefit of very valuable tax reliefs (up to 100% from IHT) and as the political landscape changes, might it be time to “use them or lose them”?

With IHT, so long as individuals are comfortable in doing so (and that's where we go back to the political and world arena), it's often advisable to start planning sooner rather than later. You can make use of the reliefs and allowances as they currently stand, while also being around to ensure the orderly transfer of control and value down the generations.

Bring on the spring budget!

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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