More families will need to pay Inheritance Tax on their loved ones’ estate after a proposed rise in the tax relief, to keep pace with inflation, was cancelled in this year’s Budget.
There are currently two tax-free reliefs which apply to inherited assets. Individuals have a tax-free allowance of £325,000, known as the ‘Nil Rate Band’ (NRB) which everyone is entitled to.
The ‘Residential Nil Rate Band (RNRB)’, also allows individuals to leave their home to certain family members, with a portion of the property’s value being IHT-free. Since April 2020 the RNRB tax relief has been £175,000.
The RNRB had been due to rise with inflation in April 2021. However, as part of the Government’s attempts to boost the Treasury’s coffers as a result of the economic strains cause by the Covid-19 pandemic, this increase has been scrapped, with future rises frozen until 2026 at the earliest.
New legislation will also be introduced so that the NRB also remains fixed at the existing rate until 2026.
This means that a couples have a combined IHT allowance of £1million – £325,000 NRB each, plus £175,000 RNRB per person.
A single person is able to leave an estate of up to £500,000, before the 40 percent IHT tax rate kicks in.
Any estates valued at over £2 million remain subject to a tax band of £1 for each £2 over the threshold, in effect meaning that the Residence Nil Rate Band is not available for estates over £2.35 million.
The rise in property values means that, without an inflationary increase to either the RNRB or NRB, families who had not expected to have to deal with IHT following the death of a loved one, may now find that the estate will be liable for a tax bill.
At Milsted Langdon Financial Services, we are able to advise how IHT issues might impact on your estate and help you sort out your tax affairs.
We will work on your behalf to ensure that your tax liability is minimised so that more of your hard-earned money stays with you, your business and, eventually, your loved ones. To find out more, please contact us.