Chancellor of the Exchequer Jeremy Hunt is reportedly set to announce an extension to the freeze of the inheritance tax (IHT) nil rate band (NRB) until 2027-28.
It has already been announced that the rate band is frozen until 2025/26. So, the freezing of the rate band for a further two years is a further stealth tax on working and middle-class families.
The nil-rate threshold – the value below which you pay no inheritance tax – has remained at £325k since 2010, when the average UK property price was £164k and £264k in London. Today, those figures are £296k in the UK and £524k in London.
So by simply not increasing rates to keep pace with inflation, more and more families are automatically brought into the IHT net.
The UK’s IHT rate is three times higher than the global average and twice that of the European Union. To put this in context, for an estate worth £1 million, the average tax rates are;
UK 27%, Germany 8%, Italy 1%, US, Canada and Australia 0%.
Sweden abolished its inheritance tax in 2004, attracting capital and people. Ikea founder Ingvar Kamprad moved back to Sweden.
Attracting Capital = economic growth = higher tax take.
The IHT is a tax on capital that has already been taxed. It means that income is taxed once. Then savings or spending, and again when money is passed down to the next generation. This means the same tax hits all three generations. This punishes the middle class and starves the economy of capital.
By owning a home, your estate will likely incur a tax which was originally intended to target the wealthy.
Of course, house price rises are only one of the factors forcing more and more families over the threshold. High inflation is a major contributing factor – a stealth tax against the aspiring working and middle classes.
IHT has the potential to reduce incentives to save and grow capital, which is vital in any economy.
Many people starting businesses rely on private capital, not bank lending. IHT shrinks this pool of capital, slowing economic growth and harming productivity.
The wealthiest people can most avoid IHT, leaving middle-class families to pick up the tab for what are, in fact, modest assets.
IHT is often referred to as a voluntary tax as there are a number of reliefs and exemptions that can be used to mitigate any IHT payable. However, with rate bands being frozen, relatively modest estates are becoming liable to IHT. The earlier planning is started, the more the likely tax savings. Our team of experts have many years’ experience in this area and can provide practical and effective planning advice in areas such as:
As with all areas of tax planning, there are many pitfalls to be wary of and in particular the impact of other taxes such as Capital Gains Tax and Stamp Duty Land Tax need to be considered.
If you have any questions about IHT or this article, or any of the topics covered, please get in touch with us.
Optimized by Seraphinite Accelerator
