It’s budget day and we will be focusing on what that means for you regarding taxes associated with legal matters such as Inheritance Tax and Stamp Duty Land Tax.
Inheritance Tax (IHT)
The Chancellor, Rachel Reeves, has extended the freeze on Inheritance Tax thresholds to 2030. The means that allowances remain the same in that up to £325,000 of a deceased estate can be inherited without paying IHT, rising to £500,00 if the estate includes a residence that passes to a direct descendent, such as from mother to daughter, and up to £1m when a tax-free allowance is passed to a surviving spouse or civil partner.
The freeze on the threshold however will likely draw more people into paying Inheritance Tax as property prices continue to rise albeit slowly.
From April 2027, estates will include inherited pensions so for those who inherit a loved one’s pension it will now form part of the deceased estate and be subject to up to 40% tax. Those who are relying on this income may need to address what impact this hefty deduction would have on the amount they would be left to live on particularly if they have no private pension of their own.
Stamp Duty Land Tax (SDLT)
Ms Reeves has increased the stamp duty for second homes – known as the Higher Rate for Additional Dwellings – from 3% to 5%. This 2% rise will take effect from tomorrow. This will have a significant impact on buy-to-let landlords who will need to find an additional 2% for SDLT for any property purchased from tomorrow onwards.
Capital Gains Tax (CGT)
And having paid more in SDLT, any landlord (who is a basic rate taxpayer) selling up will have to pay 18% in CGT or 24% if they are a higher rate taxpayer.
Right to Buy Discounts
Ms Reeves announced the government will reduce the right-to-buy discounts for council houses.
Currently the right-to-buy discount on council property is up to 70%, she did not state to what level the government will reduce this discount.
The chancellor has now sat down and the opposition leader, Rishi Sunak is responding to the budget.
These are the headlines and there will doubtless be more detail to follow. Please bear with us while we adjust our systems to respond to the change in tax rates.