Private Client lawyers have long been used to a frozen Inheritance Tax (IHT) threshold (known as the nil rate band). An individual's nil rate band has remained at a constant £325,000 since April 2009 (£650,000 for married couples).
Prior to that date, the threshold had increased on a yearly basis, more or less in line with inflation (as seen here). When allowances freeze like this, they have the effect of 'stealthily' bringing more people into the IHT regime as estate values (notably property values) inflate over time.
This stealth raid was mitigated to some extent by the introduction of the residential nil rate band in 2017, which provided an extra allowance whose current value is £175,000 (£350,000 for married couples). However, there are a variety of technicalities that attach to that new allowance, and it was (and indeed still is) widely felt in the industry that increasing the 'normal' nil rate band would have been a far more effective and straightforward solution.
Still, we are where we are. The residential nil rate band did itself increase from £100,000 in 2017 to £175,000 now. However, that allowance is now frozen until 2026. Likewise, it was previously confirmed that the normal nil rate band would be frozen until 2026.
It is now widely anticipated that a further freezing of the nil rate band(s) will be introduced in next week's Autumn statement. It is not clear whether this will apply to both nil rate bands, although my assumption is that it will.
Further details can be found here.
In short though, it is thought that this extension could bring a further 3 million people into the IHT net. Inheritance Tax is now moving from its historic position of a tax on the most wealthy, to a tax on middle England (and especially for homeowners in the South).
The take home advice here is that if you have an estate whose value is likely to exceed £325,000, or £500,000 if you have a house and children (again with double those values for married couples), then it is worth considering taking specialist IHT and estate planning advice.
Please do not hesitate to contact any member of our Wealth Management and Taxation Team if you would like to discuss this further. The writer can be contacted directly on 01494 893 533.