Inheritance Tax thresholds frozen
As part of their attempt to recoup the billions spent during the pandemic, Rishi Sunak has announced that the Government will be introducing legislation, to freeze the existing nil-rate bands on Inheritance Tax until 2026.
Each individual in the United Kingdom benefits from a tax-free allowance known as a ‘nil-rate band’. The current nil-rate band is £325,000 and this threshold will now be frozen until 2026.
An additional allowance called ‘residence nil-rate band’ was introduced in 2017 and was designed to help protect the family home from Inheritance Tax. It applies to individuals who leave their property to their direct descendants i.e. children and/or grandchildren (including foster, adopted and step-children).
It was introduced at £100,000 for deaths occurring tax year 2017/18 and was phased in over four tax years at a rate of £25,000 per annum and is currently £175,000. The residence nil-rate band was due to rise with inflation in April 2021, but this threshold has also been frozen until 2026. As before the residence nil-rate band will continue to gradually reduce (taper away) for Estates worth more than £2million.
Whilst a “freezing” of thresholds may not seem too bad, the effects of 5 years of inflation and property value increases could have a marked effect on the inheritance tax payable, especially so for estates that haven’t had any planning for IHT or where the Wills and /or IHT planning is out of date.
If you are concerned about an Estate or would like more information about Inheritance Tax, please do not hesitate to contact us today.
