Inheriting a Nightmare

Inheritance Tax (“IHT”) is currently charged at the rate of 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 in the last year which relate to celebrity estates, inheritance and the issues that can stem from it. Among them:

1) 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

2) 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 to take place on 26 November 2025. Economists and tax specialists theorise that there are three probable outcomes for IHT:

1) raising the overall rate of IHT from 40% to 45%,

2) abolishing certain allowances, or

3) extending the freeze on the IHT allowances.

A raise in the tax rate would likely be the simplest option for the government, and the hardest knock on the country’s wealth. As data continues to show that people are living for longer, they are holding on to more wealth, and therefore, the amount that is being 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 see that amount being taxed at the 40% rate instead of 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 and would “kick the can down the road” until the next Budget but with the value of other assets (particularly property) increasing, it will have an impact.

Out of the 3 possibilities outlined above, it may be that the public’s most favourable option is 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 which is dedicated to helping you plan for the succession of your estate and to discuss ways to mitigate the IHT causing less stress and issues for your chosen beneficiaries. Please contact our Wills, Probate & Lifetime Planning team to find out your options.