Inheritance Tax (“IHT”) is currently charged at 40% on the value of an estate when someone dies.
This is subject (if available, in full) to the nil rate band threshold of £325,000 and the residence nil-rate band of £175,000 (an allowance linked to homes being left to descendants). There are also other exemptions and reliefs which can change the amount of IHT payable.
In the Autumn Budget 2024, the Chancellor of the Exchequer, Rachel Reeves, announced that the nil rate band will be frozen at its current rate until at least 2030. However, HMRC and Rachel Reeves are constantly facing pressure to raise the nil rate band.
There have been many media reports over the last year relating to celebrity estates, inheritance, and the issues that can stem from them. Among them:
- Liam Payne, who did not leave a Will, and as a result his estate (reported to be circa £24m) is to be held on trust for his minor child until he reaches the age of 18; and
- Sir Terry Wogan and his wife, Lady Helen Wogan, whose children are being forced to sell the £3.75m family home to pay the required IHT on Lady Wogan’s estate. Whilst this situation is quite rare, it does show that people, from all economic backgrounds, struggle with the harsh reality of IHT.
What can we expect for IHT?
The next Budget is due on 26 November 2025. Economists and tax specialists theorise that there are three probable outcomes for IHT:
- a rise in the overall rate of IHT from 40% to 45%,
- abolishing certain allowances, or
- extending the freeze on the IHT allowances.
A rise in the tax rate would likely be the simplest option for the government, but it would also be the most brutal blow to the country’s wealth. As data continues to show that people are living longer and holding on to more wealth, the amount inherited is increasing.
Abolishing allowances such as the current nil rate band of £325,000 or the current residential nil rate band of £175,000 could mean those amounts are taxed at the 40% rate rather than the current 0% rate. That alone could see an additional £200,000 IHT.
An extension of the freeze on allowances may not cause any immediate concern. It would “kick the can down the road” until the next Budget, but with the value of other assets (particularly property) increasing, that impact will be felt.
Of the three possibilities outlined above, the public’s most favourable option may be the last one.
So what can you do if you are in this situation?
Well, the important thing is, no matter what your assets may be, it is always a good idea to speak to a solicitor to find out your options.
At Woodfines, we have a team dedicated to helping you plan for the succession of your estate and discuss ways to mitigate IHT, reducing stress and issues for your chosen beneficiaries.
Please get in touch with our Wills, Probate & Lifetime Planning team to find out your options.
By Joseph Cowles – Trainee Solicitor
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