“Freezing the inheritance tax threshold for yet another two years – until April 2028 – is another kick in the teeth for those wanting to pass down their wealth to loved ones. We believe that this extended freeze combined with rampant inflation and the increase in house prices will bring more money into the taxman’s sights.” Alex Davies, CEO and Founder Wealth Club

Contrary to what many think, inheritance tax doesn’t just affect the super-rich. It will be the thousands of hardworking families to bear the brunt, as they get caught in the cross hairs of high property prices and frozen IHT allowances.

Recent figures show that HMRC raked in another £3.5 billion in inheritance tax receipts in the six months to September 2022. This is £400 million more than in the same period last year and continues the upward trend. The good news is that with some careful planning there are lots of perfectly legitimate ways you can eliminate or keep IHT bills to the minimum, so more of your wealth is passed on to your loved ones rather than being syphoned off by the taxman.

Who Pays IHT?

• Inheritance tax (IHT) of 40% is usually chargeable if one’s assets exceed a certain threshold, after deducting any liabilities, exemptions, and reliefs.
• The threshold (nil rate band) has been £325,000 per single person since 6 April 2009 – and will now stay frozen at this level up to April 2028.
• There is an additional transferable main residence nil rate band of £175,000 available when passing the family home down to children or other direct descendants.
• Any unused threshold may be transferred to a surviving spouse or civil partner. So, a couple could currently potentially pass on up to £1 million before IHT might apply.

Key IHT Stats

1. One in every 25 estates pay inheritance tax, but the freeze on inheritance tax thresholds, paired with inflation and decades of house price increases is bringing more and more into the taxman’s sights.
2. Wealth Club calculations suggest the average inheritance tax bill could increase to just over £266,000 in the current tax year. This is a 27% increase from the £209,000 average paid just three years ago.
3. While you can pass on money IHT free to your spouse or civil partner, the estate could still be subject to IHT on their death though they may be able to make use of your pass-on allowance.
4. The main threshold is the nil-rate band, enabling up to £325,000 of an estate to be passed on without having to pay any IHT. This has been unchanged since April 2009.
5. There is also a Residence Nil Rate band worth £175,000 which allows most people to pass on a family home more tax efficiently to direct descendants, although this tapers for estates over £2 million and is not available at all for estates worth over £2.35 million.

*Assumes inflation at 4% from 2023/24 to 2027/8.