17 November 2022
If you are covering the news that the inheritance tax threshold has been frozen for a further two years, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“As had been widely anticipated, the Chancellor has confirmed that inheritance tax (IHT) thresholds will be frozen for a further two years – a move which is likely to net more than an additional £1 billion for government coffers by the 2027/28 tax year according to OBR forecasts.
“The number of people caught in the IHT net has been rising for several years now, largely due to the significant rise in house prices which has led to more estates being pulled in due to property wealth. While house prices have seen a small dip already and are expected to cool further given the current economic circumstances, this is unlikely to help reduce IHT bills for some time yet so people must take action to mitigate the costs themselves where possible by making the most of other tax and thresholds.
“The average UK house price was £294,559 in September 2022 – this is just £30,441 lower than the nil rate band which has now been frozen for a further two years. While house prices have been tipped to drop by around 10% during 2023, in previous years we have seen house prices grow considerably. Should we see a rebound in house price growth following any fall – which is very likely given the levels of supply and demand in the UK – in the years the nil rate band is frozen, the average house price is almost certain to tip over the threshold. Likewise, the residence nil rate band has also remained frozen at £175,000.
“Extending the frozen thresholds for an additional two years will amount to an inheritance tax raid by stealth, but the government has clearly deemed this acceptable as it struggles to cope with the significant debt it took on to survive the events of the past couple of years, as well as the unenviable task of alleviating the cost-of-living crisis.
“In addition to the extended freeze on IHT thresholds, it is important to remember that gifting allowances have also been greatly diminished as they have not increased with inflation, which also reduces people’s ability to mitigate IHT. The government opting to leave gifting allowances untouched as well as freezing the IHT threshold amounts to a double whammy that will not only see IHT bills mount, but also prevents people from increasing the flow of intergenerational wealth which could have helped to take the sting out of the financial hardships many are facing.”
