30 October 2024
If you are covering the budget and the freeze to the Nil Rate Band, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
"The decision to continue the freeze on the IHT nil rate band (NRB) at £325,000 will pull many more estates, which many would consider relatively modest, into the inheritance tax net. The NRB has been frozen since 2009 and if it had risen in line with inflation, it should now be £503,879 so freezing this until 2030 will make this threshold even more antiquated. We are already seeing record breaking IHT receipts, and this change will compound this.
"Inheritance tax, which is already much maligned due to its complexity, will now affect more estates, particularly in areas where property values have increased sharply, pushing even average homes into the taxable category.
"The average net estate value reached £334,173 in 2019/20, meaning many will automatically surpass the NRB and may be faced with an IHT bill to pay. This has likely risen considerably in the years since, and the rapid increase in house prices will have played a significant part.
"According to the government, the average UK house price now sits at £293,000, rising significantly in certain areas of the country such as London and the South East. This leaves just £32,000 before the full nil rate band is exhausted and someone’s estate becomes exposed. However, given just yesterday Rightmove reported that the average new seller asking price is now £371,958, this could automatically make £46,958 of someone’s home taxable if they are not entitled to use the complex residence nil rate band.
"This shift could have far-reaching financial consequences for families who rely on inheritance to maintain financial security—whether to pay off mortgages, fund education, or supplement retirement plans. As more estates fall within the IHT net, the financial legacy that families have carefully planned to pass down will shrink, and the tax bill will rise.
"Families with higher-value estates are more likely to seek financial advice to mitigate their tax liabilities through careful estate planning. However, lower-value estates may not seek out such advice, leaving them more vulnerable to IHT without taking advantage of available reliefs or strategies. This could make the system even more inequitable, as those without access to advice will bear a disproportionate share of the tax burden."
