Inheritance Tax and the Autumn Statement 2022
One key item that may have slipped you by, is the changes to Inheritance Tax (IHT), or rather the lack thereof. The Nil Rate Band – the first threshold at which an estate will start paying IHT was set at £325,000 in 2009 and has not changed since. Mr Hunt confirmed that this rate will stay the same until at least 2028. This represents a near two-decade freeze which has never been adjusted for inflation. According to Money Week, if you were to adjust for inflation, the Nil Rate Band should be worth in the region of £460,000, but it is still stuck at £325,000. This figure does not even take into account record high inflation in recent months. If inflation continues on its current path, we could soon be looking at a situation where in real terms the Nil Rate Band is worth a quarter of what it was worth 12 years ago.
To make matters worse the Residence Nil Rate Band, which is only available to estates where the deceased is leaving their family home to their children or grandchildren, is also frozen at £175,000. Again, adjusted for inflation, this would be over £200,000 today. For estates over £2 million this relief tapers off at a rate of £1 for every £2 over the £2million threshold. The tapering also remains unchanged, creating further opportunity for taxation by stealth.
That said, it is no wonder that the treasury is reluctant to increase thresholds. Since April of this year, IHT revenue has increased to £3.5billion. This is up £400million on this time last year. It is thought that rising house prices account for this increase.
The implications for individuals and families
So, what does all of this mean for you and your family? Now more than ever it is essential that you and your family take steps to preserve your assets and ensure as much as possible can be passed onto the next generation. At present each estate has £325,000 that can pass free of IHT and a further £175,000 if your estate qualifies. If you and your spouse leave everything to each other then on the second death these two figures double up and your joint estates could be entitled to £1million before IHT is applied. However, after this most estates are taxed at 40%. This means an estate worth £1.2million, which with rising house prices is becoming more and more common, could end up paying £80,000 in IHT.
How can Hanne & Co help?
The Private Client team at Hanne & Co specialise in IHT planning and can offer you creative solutions to ensure that you and your family maximise the money available to the next generation.
Additionally, when a loved one dies, it is important that you instruct a specialist solicitor to administer the estate so that they can ensure that the estate is claiming all of the IHT allowances and thresholds it can. This area of law is complex, often things are missed, and estates end up paying more IHT than is necessary. Our Private Client team at Hanne & Co are here to help administer your loved one’s estate in the most tax efficient way possible. Contact us today to find out how we can help you.