Budget Announcement Oct 24: How will this impact IHT and Business Relief Investments?

As the Labour Government prepares for its first Budget, Inheritance Tax (IHT) remains a significant topic of discussion. Deepbridge has taken this opportunity to summarise the current state of IHT in the UK and how changes may have implications, particularly concerning Business Relief investments.

1) Understanding Inheritance Tax

Inheritance Tax is a tax on the estate of a deceased person, and it applies to the total value of their assets, including property, savings, and possessions, if the estate exceeds the nil-rate band. Currently, the nil-rate band (NRB) is set at £325,000 per person, and married couples can access both NRBs. Additionally, the residence nil-rate band (RNRB) allows homeowners to pass on their primary residence to direct descendants, further increasing the threshold before tax is applied. 

The standard Inheritance Tax rate is 40%, which is charged on the value of the estate above the nil-rate band(s). Various reliefs and exemptions exist, such as those for gifts made during a person's lifetime and charitable donations, which can impact the overall tax liability.

2) Understanding Business Relief Investments

Business Relief (BR) is a tax relief that allows certain business assets to be passed on without incurring Inheritance Tax. This relief was originally designed to encourage investment in businesses by ensuring that family-owned or small businesses can be transferred to heirs without the burden of significant tax liabilities. However, today, Business Relief is an investment in its own right, allowing clients without businesses to invest and access 100% Inheritance Tax Relief, should the investment be held for a minimum of two years and on death.

3) Implications of the Upcoming Budget Announcement

While the specifics of the upcoming budget announcement remain to be seen, any changes to Inheritance Tax policy could significantly impact Business Relief investments. 

Potential changes could include the following, although this is entirely speculation until the confirmation following the budget announcement:

1. Adjustments to the nil-rate band
2. The use of off-shore Trusts
3. The introduction of new reliefs
4. Inheritance Tax on Pensions

As we await the upcoming UK budget announcement, the current framework for Inheritance Tax remains in place. However, any potential Inheritance Tax increases will mean that the Financial Advisers will need to understand all options available to clients, particularly Business Relief investments.

Learn more about Business Relief:

Click here to access our Intelligent Partnerships publication

4) Implications to Renewable Energy Investments

Deepbridge’s unquoted Business Relief solution, the Deepbridge Estate Planning Service,  invests solely in the renewable energy sector, encompassing wind power, anaerobic digestion, and hydropower energy sources. 

In light of the Labour Party's commitment to achieving "clean energy by 2030," which they have identified as a key priority alongside fostering economic growth and addressing the cost-of-living crisis, we at Deepbridge recognise that our objectives are closely aligned with these national ambitions.* Our focus on reducing carbon emissions directly supports the broader goal of achieving Net Zero.

The Labour Party has articulated that “with a serious industrial strategy and a genuine partnership between the public and private sectors, we can make Britain a clean energy superpower.”* As a private sector fund manager dedicated to renewable energy investments, we are eager to engage with any forthcoming policy changes that may further enhance the investment potential of this sector.

At Deepbridge, we remain committed to leveraging our expertise in the renewable energy space to contribute positively to the UK’s clean energy transition, while seeking to deliver value to our investors

It is crucial for stakeholders to stay informed about developments in Inheritance Tax policy to effectively plan their financial and estate strategies, and Deepbridge will take a leading position on this.

Sign up to our post-budget announcement webinar here

For those involved in Business Relief investments, monitoring the budget announcements will be essential to understanding the future landscape of Inheritance Tax and its impact on their investments.

Olivia Drinnan, Marketing Director at Deepbridge Capital