Inheritance Tax (IHT) bills on the rise - especially if you live in the South
Tuesday 24th August 2021
Katy Baxter
The human cost of COVID has been huge and will have an impact on families and people's lives forever. The financial impact has also been felt by many and although likely to be temporary, the government finances have been hit hard and somehow this debt will need to be repaid in the years to come.
To not hinder economic recovery and growth, Rishi Sunak has limited fire power at his disposal. However, in March this year he already showed part of his intent by raising money via taxes when he froze two IHT thresholds for the next five years. This means the IHT Nil-Rate Band is remaining at £325,000 and the Residence Nil-Rate Band will be kept on hold at £175,000 until 2026. The Nil-Rate Band has been frozen at £325,000 per person since April 2009, and so by April 2026 it will have remained unchanged for a period of 17 years during which time property prices have risen sharply.
Two thirds of estates hit by IHT nationally are in the South East, London, East of England and South West areas. In 2018/19 the average liability for estates paying IHT increased by 6% over the previous year, with an average bill of £210,000. Those residing in London had the highest IHT liabilities which were an average of £271,820 each (source www.thisismoney.co.uk 11/08/2021)
Now that Rishi Sunak has frozen the thresholds, and property prices in these regions continue to increase, many more estates are likely to fall within the scope of IHT. Families are also likely to have seen good growth in their investment portfolios over the last five years so all in all, wealth for many has grown. The prospect of IHT reforms will be of concern, especially for those who are forced to sell the homes of their loved ones or other assets to pay a large IHT bill.
Mitigating Inheritance Tax requires careful planning and professional advice so that estates can pass to the next generation without having to pay an unnecessarily large tax bill to the government. There are a range of strategies starting with how you use your pension, using Business Property Relief and qualifying BPR investments, taking out life assurance, investing into Trust arrangements, and making gifts to your family. Some or all of these maybe appropriate, and at Montgomery Estate Planning we have the expertise and experience as specialists to help. Please do get in contact if you are concerned about future IHT bills, especially if you live in the South of England.