Chancellor Jeremy Hunt announced an extension in his Autumn Statement to the freeze on Inheritance Tax thresholds to April 2028.
Prime Minister Rishi Sunak had previously frozen the threshold at £325,000 until April 2026 during his tenure as Chancellor.
The freeze on the threshold came as no surprise to wealth manager Charles Stanley, who rated the freeze as one of the most likely measures to be announced in the Autumn Statement.
Martin Brown, managing partner at national IFA firm Continuum, said the freeze on the thresholds offered Financial Planners a chance to prove their value.
He said: “The extension means it is likely that more estates will become liable to Inheritance Tax, thanks to rising house prices and soaring inflation. Many people may find they are caught by surprise at the impact on their estate at an already painful time following the passing of a loved one.
“Inheritance tax is charged at 40% of an individual’s estate falling above the £325,000 nil rate band. For homeowners, there is an additional residence nil-rate band for inheritance tax, currently £175,000 when the family home is inherited by their direct descendants such as children or grandchildren on their passing. Therefore, with the appropriate planning in place, it is possible for a couple to leave up to £1m of wealth to their children or grandchildren without liability to inheritance tax, depending on the value of the net estate.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said the freeze demonstrated why people should make the most of their gift allowances when it comes to estate planning.
She said: “Inheritance Tax used to be seen as a wealthy person’s tax, but a mix of booming house prices and threshold freezes mean this is no longer the case and this latest freeze will only make matters worse. Inheritance tax receipts received by HMRC during the financial year 2021/22 were at an all-time high of £6.1 billion, with estates over this level facing eye watering 40% tax bills.
“There are things you can do to mitigate an IHT bill. You can give your family gifts during your lifetime rather than leaving it all in your will. Not only does it have tax benefits, it also means you get to see them enjoy their gifts while you’re still around. Gifts given more than seven years before your death will not attract IHT.
“You also get a gift allowance of £3,000 each year that falls out of your estate immediately for inheritance tax purposes. You can also give small gifts of up to £250, and specific gifts for family weddings.
Linda Wallace, director at mutual Wesleyan Financial Services, said it is more important than ever for people to make the most of their allowances when it comes to estate planning.
She said: “Inheritance tax has once again been raided for the Treasury’s coffers. The threshold for paying inheritance tax has been frozen since 2009. Not only does this mean it has not kept pace with inflation but, owing to rising property prices, more and more people are falling within its grasp.
“While £325,000 may sound a lot, those who own property are likely to find they are close to, or exceed this limit, and may not be able to leave their loved ones as much as they’d hoped when the time comes.”
Over eight in ten (81%) of UK adults back tax increases to help improve the UK’s public finances, according to a survey by Opinium on behalf of investment platform AJ Bell. However, just 21% said they would back a rise in Inheritance Tax.
