Published on: 28th November 2022

Autumn Statement and the impact on IHT

Earlier this month UK chancellor Jeremy Hunt delivered his Autumn Statement which included the announcement that the inheritance tax nil rate band allowance will remain frozen at £325,000.

On death when an individual’s estate is valued, the amount above the inheritance allowances is taxed at 40%. If on death, an estate falls below that threshold, then there is no inheritance tax to be paid. Currently, the nil rate band allowance is £325,000 and has been frozen since 2009, previously this freeze was due to end in April 2026. However, during the Autumn Statement the chancellor announced that the allowance will remain at £325,000 until April 2028. It is important to note making gifts in the 7 years prior to death may impact the amount in allowances that can be claimed.

It was noted during the announcement that the main residence nil rate band allowance will also continue to stay frozen at £175,000. Introduced in April 2017, the residence nil rate band allowance, or a percentage of, can be claimed if, on death, the primary residence is passed to direct lineal descendants or their spouses. This includes children, stepchildren, adopted children and grandchildren and the spouses of. 

For example, Miss Green’s home is worth £300,000 in addition to other assets amounting to £200,000. If Miss Green passes everything on her death to her 2 children, there would be no inheritance tax due. Miss Green has her nil rate band allowance of £325,000 and her main residence nil rate band allowance of £175,000 as she is passing her home to children. However, if Miss Green’s home is worth £400,000 and her other assets are worth £200,000 her estate would be valued at £600,000. Based on the current allowances this would mean £40,000 of inheritance tax would be paid on her death. It is additionally possible for married couples passing their property to direct lineal descendants (or their spouses) to claim up to £1 million of allowances on second death.

Due to the rise in property prices, families are frequently faced with paying inheritance tax on the death of loved ones. The UK House Price Index reported earlier this year that the annual price increase for properties in England was 11.9% with the average property value of £299,249. It was reported that the average home price in the South East of England is now £382,791. With house prices due to continue to increase and the allowances continuing to be frozen, a lot of peoples hard earnt money will start to be used to pay inheritance tax rather than being passed on to their chosen relatives, friends, or charities.

If you wish to discuss your allowances and inheritance tax position, book an appointment with one of our consultants. One of our trusts may be beneficial to you and help minimise the amount of inheritance tax that may be payable on your estate after you have passed away. 

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