There is expected to be a sharp rise in the number of estates affected by the controversial inheritance tax (IHT).
Experts have warned that the number of estates expected to be caught by inheritance tax is likely to double by 2016/17 – from 21,000 in 2012, to an expected 42,000 in 2017.
This rise is due to the tax-free threshold (also called the nil-rate band) having been frozen at £325,000 since 2009, with chancellor George Osborne announcing that the tax-free threshold will remain at this level until at least April 2018.
This is despite Mr Osborne’s speech at the 2007 Conservative Party conference, ahead of becoming chancellor, in which he claimed only “the very rich” will be paying inheritance tax in a Conservative Britain.
He went on to say: “The next Conservative Government will raise the Inheritance Tax threshold to £1 million. That means, we will take the family home out of inheritance tax. In a Conservative Britain, nine million families will benefit. In a Conservative Britain, only millionaires will pay death duties… for millions of people, today sounds the death knell for death taxes.” Read the full speech here.
Surprise Upturn in House Prices
Far from the death knell for death taxes, the tax-free threshold on inheritance tax being frozen at a third of what was promised by George Osborne as the shadow chancellor, couldn’t have come at a worst time for “the aspirations of ordinary people” as house prices increase far faster than the Treasury predicted, with a rise of 25.2% expected by the end of 2018. It’s estimated that this rise in house prices, coupled with the freeze in the inheritance tax threshold, will affect 176,000 estates in this period of time.
This rise in house prices has been somewhat of a surprise for many of the country’s economic forecasters; in March of this year the Office for Budget Responsibility predicted house prices would rise by just 1.6% in 2014, yet Savills estate agents were much more optimistic, predicting a national rise of 6.5%. Though this surprise upturn is, of course, good news for homeowners, without a tax-free inheritance tax threshold that moves in time with a rise in house prices, a much greater number of families will end up paying this controversial tax that otherwise would have avoided it all together.
A spokesperson for The Treasury commented on the issue, stating that “Over 96% of all estates do not have to pay inheritance tax. Since 2009, the value of core estate assets such as domestic property has fluctuated significantly. Despite this, the number of estates paying tax has remained at less than 4% for over four years.”
Further Information on Inheritance Tax Planning
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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.