The nil-rate band is the amount of an estate that is exempt from Inheritance Tax (IHT) in the UK. Currently, the nil-rate band stands at £325,000 per person. Any assets above this amount are subject to IHT at a rate of 40%.
In Jeremy Hunt’s Autumn Statement of 2022, it was announced that the Inheritance Tax nil rate band (NRB) and residence nil rate band (RNRB) will be frozen at their current levels for tax years 2026/27 and 2027/28. This means that the threshold will remain at £325,000 per person until at least April 2026. This decision has significant implications for UK taxpayers, and in this blog post, we'll explore what this means.
What is the Significance of the Nil-Rate Band Freeze?
The freeze on the nil-rate band is significant because it means that more estates will be subject to IHT in the coming years. As property prices and other assets increase in value, more and more estates will exceed the £325,000 threshold, meaning that more taxpayers will be required to pay IHT.
The freeze also means that there will be no increase in the nil-rate band to keep up with inflation. Inflation erodes the value of money over time, so by freezing the nil-rate band, the UK government is effectively increasing the tax take from IHT over time.
What Should UK Taxpayers Do?
UK taxpayers should be aware of the implications of the nil-rate band freeze and take steps to minimize their IHT liability. This includes considering gifting assets to family members or setting up trusts to protect assets from IHT. It's also worth considering life insurance policies to cover the cost of IHT liabilities.
It's important to seek professional advice from a qualified financial planner or tax advisor to ensure that you are taking the most effective steps to minimize your IHT liability.
In Conclusion
The extension of the nil-rate band freeze until 2028 has significant implications for UK taxpayers. More estates will be subject to IHT, and there will be no increase in the threshold to keep up with inflation. It's essential for taxpayers to take steps to minimize their IHT liability and seek professional advice where necessary. By taking action now, UK taxpayers can ensure that their estates are protected and their loved ones are not burdened with an unnecessary tax bill.