Inheritance tax freeze – A new stealth tax?

By Legal futures Partner Ampla Finance

You may be surprised to learn that Inheritance Tax (IHT) has been frozen at £325,000 since 2009. This is a reduction from actual conditions and recent figures show it would have been more than £150,000 more if the threshold had increased in line with inflation.

The bottom line is that such a freeze will hit middle-income families more, as they are taken by the IHT as real estate prices rise. And the threat is likely to increase thanks to Chancellor Rishi Sunak IHT zero rate now frozen at £325,000 until 2026. Families who are affected are urged to act as soon as possible to protect their assets from HM Revenue & Customs ( HMRC).

HMRC is already enjoying huge windfalls and raised a further £700m from the IHT between April 2021 and February 2022 – a huge 14% increase on the previous year to over £5.5bn sterling paid into the Treasury since 2009. In a move designed to boost revenue, Rishi Sunak also froze income tax, pension lifetime allowance and capital gains tax thresholds until April 2026 at least.

Freezing tax in this way is a stealth tax as it increases the amount HMRC receives each year without people realizing it. Personal tax expert Christine Cairns believes that if the IHT band threshold had followed inflation trends every year since 2009, it would have reached over £478,000. This is over £153,000, which could have been passed on to families tax-free and means a bereaved family paying IHT at 40 per cent, will pay an additional £61,231 to HMRC due to the freeze.

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Additionally, the Zero-Rated Principal Residence Threshold, which is a partial exemption that allows families to leave £175,000 of their home property to their children and grandchildren, has also been frozen until 2026. very real effect of eroding its value. . Christine Cairns said:

“The IHT freeze is just one example of how more and more middle to low income households will be pressured to pay more tax as prices rise.”

No wonder so many people are furious to see Sunak’s wife, Akshata Murty, trying to use her non-domiciled status to save millions in UK tax. Especially when everyone is taxed more.

By their very nature, stealth taxes escape most people because they don’t see a freeze as a real reduction in conditions. But that’s exactly what it is. And the reality is that the situation will get worse as inflation rises, with Halifax reporting that house prices have climbed 11% in the last twelve months alone.

With the average family home in the UK worth an estimated £282,000, the IHT bands remain the same, and that’s not expected to change for at least another four years. And while Sunak isn’t the first chancellor to use frozen tax breaks as a stealth tax, he appears to have taken it to a whole new level.

The unfortunate outcome for families who otherwise would not consider themselves wealthy are likely to be supported by the IHT, which was originally considered a tax on the extremely wealthy.

Mike Hodges, tax partner and head of Saffery Champness, the private wealth practice group, said the Treasury is raising billions of pounds in revenue ” quiet “, and, “The IHT freeze, is for all intents and purposes, a tax hike by any other name.”

However, there is hope. Families can reduce their tax exposure by planning carefully and making donations. Estate planning must now focus on passing assets to future generations during their lifetime, or placing assets in a trust so that they do not become part of an individual’s estate upon death.

That said, one should always exercise caution when considering such options. It is essential to ensure that assets are donated effectively for the purpose of removing them from someone’s estate for IHT reasons. Additionally, giving assets to family or placing them in a trust to mitigate the IHT can often trigger other unforeseen tax liabilities, such as capital gains tax.

In a classic chicken and egg situation, no end of UK estate is ‘locked in’ because the executor, who is most of the time responsible for paying the IHT, has no just don’t have the funds to pay the liability. Add to this that the executor is often not the beneficiary, the inability to pay inheritance tax means the whole process is suspended for those who may need to realize their inheritance sooner.

Andrew Shirtcliff, Director of Business Development at Ampla Finance, says:

“We understand the struggle third parties go through when navigating the domains with their customers. But there is a solution. Executor loans are available for those who have an IHT bill to pay when no provision has been made to cover the payment and for beneficiaries who wish to access up to 70 % of expected proceeds of an estate, even before probate is granted. .”

To learn more about partnering with Ampla Finance, visit, email [email protected] or call 0800 009 6590.

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