Legacy takeaways from the Spring Budget 2023

The Spring Budget 2023 was announced on 15 March. The full budget can be accessed here. Here are our top three points of interest for beneficiaries and personal representatives.

Restriction of charity tax exemptions

From 15 March 2023, the definition of 'charity' for the purposes of tax is changing so that only UK charities and community amateur sports clubs will qualify for specified tax exemptions. There will be a transitional period between 15 March 2023 and 5 April 2024 for those non-UK charities and community amateur sports clubs who were previously eligible for the tax exemptions.

The charity tax exemptions affected are those for Inheritance Tax, income tax, Capital Gains Tax, stamp duty, stamp duty land tax, stamp duty reserve tax, corporation tax, Annual Tax on Enveloped Developments and diverted profits tax.

Income Tax for trusts and estates

In April 2016, HMRC introduced informal income tax reporting for trusts and estates. Where income was below £100 and consisted only of savings interest, no income tax was payable. This temporary measure continued to be extended each tax year. This arrangement will now be made permanent from 6 April 2024. The eligibility for informally reporting the tax position for a trust or estate has been expanded and these changes will come into effect from 6 April 2023 as follows:

• If the income received by a trust or estate in a tax year is below £500, income tax is not payable, and the position can be reported informally.
• Beneficiaries of an estate will not have to pay income tax on distributed income if the total income received is less than £500.
• The basic rate and dividend ordinary rate for the first £1,000 of discretionary trust income is removed.

A teaser for future changes…

With the announcement that the Office of Tax Simplification is being disbanded, it may raise the question as to how committed the government is on continuing the simplification of tax rules and reporting requirements. Perhaps to provide some reassurance as to future agendas, the budget contained the following statement "HMRC also intend to make changes to inheritance tax regulations to remove non-taxpaying trusts from reporting requirements."

Summary

The restriction of the charitable exemption for tax serves as a reminder as to how important a well-drafted will is to determine from the outset how Inheritance Tax should be calculated, but also as to which beneficiaries are expected to bear the burden. It is important to know the rules to ensure your legacy is not being undervalued.