Families are going through a recent inheritance tax (IHT) bombshell as receipts from so-called “death duties” have doubled in a decade with specialists warning of deeper ache.
Figures show the Treasury raked in £7.5billion from inheritance tax in the most latest financial 12 months – up from £3.1billion in 2013/14 – as frozen thresholds and rising home costs drag more households into the tax web.
Experts now warn the Chancellor, Rachel Reeves, is making ready to tighten the screws even further, by concentrating on reliefs on pensions, farms and household companies – piling strain on households already reeling from the cost-of-living disaster.
Tax specialists at AJ Bell said the freeze on the £325,000 IHT threshold since 2009 has been the key driver behind the surge in payments. They warning the system is now “ripe for reform” – but worry Labour’s modifications will quantity to a stealth raid on the center lessons.
Tom Selby, AJ Bell’s director of public coverage, said: “The increase in the inheritance tax take over the last decade has been absolutely staggering, with families now paying more than double what they were in 2013/14.
“This is primarily pushed by a freeze in the £325,000 threshold for paying inheritance tax since 2009. The real-terms worth of this threshold has been slashed over that period, dragging more estates into the tax web.”
And he warned: “Worryingly, this could just be the tip of the iceberg, with the government now reviewing key exemptions including pensions, farms and business assets.”
Currently, people can cross on pensions tax-free in most instances, and priceless farmland and trading business property can benefit from 50% or even 100% aid.
But those guidelines are now under review, with Labour refusing to rule out curbs that would drastically increase payments for 1000’s more grieving households.
Inheritance tax receipts have risen over 140% in ten years. Over 41,000 estates were caught in the IHT web last 12 months.
Now Labour’s proposed reforms could carry 1000’s more households into scope.
Tom Selby added: “Rather than addressing the deep-rooted issues in the inheritance tax system, including its complexity and lack of public understanding, the Government seems targeted on short-term income raising.”
Critics say the tax is no longer confined to the rich, with average house prices now over £280,000 and soaring property values in London and the South East dragging many modest estates over the threshold.
Under current rules, a person can pass on up to £325,000 tax-free – or £500,000 if a home is left to children or grandchildren – with anything above taxed at 40%.
Couples can combine allowances, potentially passing on up to £1million tax-free. But without urgent reform, experts fear this cushion will be eroded by both inflation and a clampdown on long-standing reliefs.
How to cut the bill
AJ Bell advise that families take early action to limit their IHT exposure:
- Use annual gifting allowances – up to £3,000 can be given away tax-free each year.
- Make regular gifts from income – if it doesn’t reduce your standard of living.
- Invest in AIM shares or qualifying business assets – which can attract relief.
- Review your will – and consider using trusts or other planning tools.
Financial planners are urging families not to delay, amid fears next year’s Budget could contain sweeping changes.
Mr Selby said: “Anyone with significant pension savings or business assets should take professional advice now, rather than wait until allowances are slashed.”
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