A freeze of the Inheritance tax (IHT) nil rate band (NRB) thresholds for paying the tax until 2026, coupled with soaring house prices, is drawing unsuspecting estates into the realm of IHT.

According to the Office for National Statistics, the average price of a home in the England in May 2022 has rocketed to £302,000, just £23,000 below the initial NRB. This means that more and more taxpayers, not just the wealthiest members of society, are facing IHT bills on their estates after death.

An interesting analysis of IHT receipts by investment experts at Wealth Club showed one in 25 estates now pay the tax, and with the thresholds frozen, more will soon fall into the net. They found that IHT receipts increased by £300m in the second quarter to £1.8bn and they estimate that the average IHT bill could rise to just over £266,000 this tax year, a 27% increase from an average of £209,000 paid only three years ago.



Kate Thorburn is the private client tax manager at Randall & Payne

Here’s what you need to know…

  • IHT is a tax on the estate (the property, money and possessions) of someone who’s died
  • There isn’t normally IHT to pay if the value of your estate is below the £325,000 threshold
  • If you leave your home to your children or grandchildren and your estate is valued at £2m or less, you can also benefit from the Residence Nil Rate Band, which adds an additional allowance of £175,000, increasing your threshold to £500,000
  • If you are married or in a civil partnership, you can benefit from the spousal exemption by leaving your estate to your partner in your will. In doing so, your estate transfers free from IHT. Plus they will benefit from your unused thresholds, this means their threshold can be as much as £1 million

How much do you have to pay?

The standard rate is 40% which is only charged on the part of your estate that is above the threshold. If your estate is worth £600,000 and your tax-free thresholds amount to £500,000, the IHT charged will be £40,000. The rate can be reduced to 36% if you leave 10% or more of the ‘net value’ of your estate to charity in your Will.

There are ways that you can cut your IHT bill with careful planning:

  • Gifting – passing your wealth on during your lifetime is one way to reduce your IHT bill, however, there are rules and stipulations which need to be fully understood

  • Business Property Relief or Agricultural Property Relief – certain assets receive relief from IHT but they rely on certain conditions being met

  • Charity – anything left to charity in your Will won’t count towards the total taxable value of your estate

  • Trusts – play a role in reducing a family’s exposure to IHT so that more can be passed on to future generations, providing control and protection over the family assets

If you would like to discuss your IHT position, please get in touch with Kate at Randall & Payne on 01242 776000 or [email protected].

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