The freeze in the inheritance tax nil rate band for two years is expected to push up IHT receipts from £6.1bn in 2021/22 to £7.8bn in tax year 2027/28 - an increase of 28 per cent or £1.7bn, according to Office of Budget Responsibility (OBR) figures.
In his Autumn Statement today, chancellor Jeremy Hunt announced he was extending the freeze on the inheritance tax nil rate band and residence nil rate band at £325,000 and £175,000 respectively.
The nil rate band has been at £325,000 since 2009.
But if it had risen in line with inflation, today this would be worth £407,000 and projected forward to tax year 2027/28 this would be over £500,000, which is the current combined standard and residence nil rate band.
Andrew Tully, technical director, Canada Life, said, this “stealth tax” increase would mean more people would be caught by the IHT trap and would have to complete returns and pay IHT on their estates in the near future.
He added: “The importance of early planning and using trusts so the Treasury is not one of the largest beneficiaries from your estate is so important and trusts give you control over who benefits from your assets.”
“We should be mindful that also not everyone would receive a residence nil rate band as unlike the standard nil rate band there are certain qualifying criteria, which has to be met and net estates over £2m will have this reduced by £1 for every £2 they are over this threshold.”
According to Faye Church, chartered financial planner at Investec Wealth & Investment the freeze on IHT also highlights the increase need for cashflow planning.
Church added: “Planning becomes increasingly important to help reduce our clients’ inheritance tax liability. Cash flow planning allows us to quantify the amount of asset to ring-fencing that may be called upon within a client’s lifetime, in turn identifying assets that are surplus to requirements.
“The benefit to this to the client is that monies can be gifted within their lifetime so they can see their families enjoy them, rather than pass on via their will.”
A double whammy of the government opting to leave gifting allowances untouched as well as freezing the IHT threshold amounts means that people could struggle to pass on money to their children to help them with their finances.
Rachael Griffin, tax and financial planning expert at Quilter, said: "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.”