Inheritance Tax Thresholds Set To Be Frozen

The Office of Public Guardian (OPG) has recently confirmed that an express clause specifically permitting attorneys to use a discretionary investment manager is no longer required to be included in a Property & Financial Lasting Power of Attorney (LPA).

In her latest blog, Jo Robinson discusses inheritance tax thresholds…

The Chancellor of the Exchequer, Jeremy Hunt, is reportedly set to announce an extension to the freeze of the inheritance tax threshold.

The current inheritance tax nil rate band (NRB) threshold of £325,000 has been in place since 2009 and was set to stay the same until 2025/2026. However, the freeze is likely to be extended to 2027/2028 in a bid to raise extra funds for the treasury.

If the NRB had kept pace with inflation then it should now be at £464,643 – the current nil rate band being 42.9% lower than it should be.

Figures from HM Revenue & Customs in late October revealed that around £3.5 billion has been paid in inheritance tax, with £600 million coming in September alone.

Much of the rise in inheritance tax can be put down to soaring property prices, although this may well change with the anticipated recession.

What Is Inheritance Tax?

Inheritance tax is the tax that is payable on someone’s death if the value of their estate is above the inheritance tax threshold and there are no available exemptions (for example a spouse or charity exemption).

For a single person, the threshold is currently £325,000 and tax is payable at 40% on estates over this amount. There is however an additional allowance known as the residence nil rate band which can be claimed were the deceased owned property which passes to their lineal descendants i.e. children and grandchildren.

Can I Reduce My Liability To Inheritance Tax?

Yes, if you have a taxable estate then you can do certain things during your lifetime to reduce the amount of inheritance tax that will become payable on your death. The first thing that you should consider is to seek estate planning advice from your solicitor, financial advisor or accountant.

Life Time Gifting

An easy way to reduce any potential inheritance tax liability is to make the most of the gifting allowances available to you during your lifetime.

You can make gifts using your annual allowance which is £3,000 every tax year.

If you choose to make a gift larger than £3,000 then as long as you survive for a period of 7 years following the date that the gift was made then the amount will be disregarded and will not be brought back into your estate for tax purposes on your death. However, if you die within the 7 years then some or all of that gift may be taken into account when calculating inheritance tax.

You can also make any number of small gifts up to £250 to different people, gifts out of normal expenditure and gifts in consideration of a child or grandchild’s wedding.

If you would like further information, please me on 01332 364436 or via email at j.robinson@timms-law.com.

Jo Robinson Head of Wills & Probate