Frozen Inheritance Tax Thresholds Illustrate the Value of Careful Estate Planning

More than £1.1bn of inheritance tax was paid to the HMRC in just two months new figures have revealed, with rising inflation and house prices meaning more and more families are liable to pay the tax, often unexpectedly.

The £1.1bn collected in April and May 2022 represents a rise of £100m when compared to the same period last year. While only a small proportion of people in the UK are involved in estate transactions large enough to trigger the tax, the amount being paid overall is rising long term, having more than doubled in a decade to over £6bn in 2021/22.

Estates valued at under the nil-rate band of £325,000 generate no inheritance tax liability, while an increase of £175,000 is added to the nil-rate band in cases where the deceased is leaving their home to a direct descendant. However, many analysts believe that the long term rise in house prices is leaving more families liable to pay inheritance tax, as the nil-band rate and additional allowance have been frozen for over a decade and are expected to remain so until 2026.

With a standard rate of 40% applying to portions of estates which exceed the nil-rate band, bereaved families can face significant tax bills, often without having realised that inheritance tax would be payable. The average amount paid in inheritance tax has risen by 27% in just three years, with tax bills expected to average £266,000 in 2022/23.

Careful estate planning can help you examine ways to leave a legacy for the people, charities and organisations which mean a lot to you, without the worry of expensive and unexpected tax bills. Our expert advisers can help you make tax efficient plans for gifts, legacies, trusts and more. Why not get in touch today for a free no-obligation consultation?