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An overview with Jon Dominey

Anticipate your IHT liability amid 2021 Budget tax freeze

Jon Dominey, 11 March 2021

One of key changes introduced in last week’s budget was to freeze many inflation linked increases in tax allowances, including the Inheritance Tax (IHT) Nil Rate Band – the amount of money you can leave to your loved ones when you die without them having to pay inheritance tax.

Inheritance tax laws have changed greatly in recent years, most notably with the addition of the Residential Nil-Rate Band to be applied to your main residence, currently £175,000. This, alongside the "basic" IHT Nil Rate Band, currently £325,000, and the ability to pass on your Nil Rate Band to your spouse if you pre-decease them, means that you and a spouse can effectively leave £1m tax free to your next of kin. Additionally, prior to the most recent budget, this figure would increase in line with inflation each year.

The budget yesterday has removed this last aspect, meaning the Nil Rate Band will remain stagnant until 2026. This means that larger estates that may previously have been on or around the inflated Nil Rate Band (therefore paying no inheritance tax) will now be liable – in fact if your estate would have been worth exactly the Nil Rate Band in 2026 prior to the budget, it would now be almost £160,000 over, meaning an IHT liability of £64,000.

It is never too early to start thinking about inheritance tax planning, and with this budget pushing thousands more people into a position where they may end up having a hefty bill it is important that you put a plan in place to make sure you leave your estate in a good place to provide your beneficiaries with the greatest benefit possible.


Categories: Financial Lifestyle Planning

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