In his March Budget, Chancellor Rishi Sunak confirmed that current inheritance tax allowances shall be frozen until April 2026.
There are currently two tax-free allowances for Inheritance Tax. Firstly, each individual has a nil rate band allowance of £325,000. Secondly, providing you give property to a direct descendant (i.e. a child or grandchild), there is an additional allowance called the residence nil rate band and this is presently set at £175,000.
The residence nil rate band was due to rise with inflation in April 2021, but both thresholds shall now remain at existing levels until April 2026.
Consequently, it is estimated that the number of estates subjected to inheritance tax will reach close to 50,000 per year by 2026, more than double the number of estates paying it prior to the pandemic.
While inheritance tax was originally aimed at only the wealthiest in society, the increased rates of inflation combined with property price rises has resulted in more middle-income families being targeted.
Already over the past decade, the amount of inheritance tax paid each year has doubled from £2.7billion in 2010/2011 to £5.4billion in 2020/2021 and this figure is expected to reach £7.6billion by 2026.
Inheritance tax has always been an unpopular tax with many feeling they are being taxed twice on the same earnings.
However, with timely planning, your inheritance tax liability can be reduced, if not removed altogether. There are various lifetime giving allowances which can be utilised, and your Will can be drafted in such as a way so as to maximise the value of any reliefs available to your estate.
It is best to carry out your inheritance tax planning when the full range of options is still available, so it is sensible to think about your circumstances early and seek professional advice sooner rather than later.
If you would like to discuss your options, please don’t hesitate to contact a member of our Wills and Estate Planning team.