Budget could see fundamental change to IHT

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  • Changes to death charges on pension pots could herald IHT overhaul
  • Taxing beneficiaries would align inheritance of estates and pensions
  • Irish IHT system could be an alternative model for the UK

The abolition of the 55% death tax charge on unused pension pots may be the signal that a significant change to inheritance tax (IHT) is in store in the Budget on 18 March.

Ahead of the Budget, Allan Downes, financial adviser at NFU Mutual, said: “We’re now only weeks away from the General Election and it’s likely George Osborne will want to woo voters with another landmark announcement to follow last year’s seismic changes to pensions and Stamp Duty.

“The Chancellor could look at an inheritance system similar to the Irish model where, rather than taxing someone’s estate, the person or people inheriting would be taxed instead. This approach would bring inheritance tax more into line with the new rules on pension pots.”

From April 6, tax on pension pots for those 75 and older will be charged to the beneficiaries. For everything else, inheritance tax is still charged on the estate rather than the recipient.

Despite many reliefs and exemptions, inheritance tax remains deeply unpopular and there have been many calls to increase the threshold from £325,000 to at least £1 million.