Following the decision to freeze two key thresholds in last month’s Budget, the Treasury is expecting Inheritance Tax receipts to soar by almost £1 billion by 2025/26.

The two thresholds to be frozen are the nil-rate band, which will remain at £325,000 until April 2026 and the residence nil-rate band, which will continue at £175,000, again until April 2026.

The result being that a single person maximising both nil-rate bands could pass on up to £500,000 with no Inheritance Tax liability and this is doubled to £1m for married couples.

The nil-rate band has not been changed since 2009/10 and a planned 0.5% increase to the residence nil-rate band in line with the Consumer Prices Index rate of inflation from September 2020 was abandoned.

The Treasury expects the freeze to affect around 161,900 estates over the next five years, 12,700 of which will be new estates dragged into Inheritance Tax’s net.

With more estates becoming liable for the levy, Inheritance Tax receipts are expected to rise by relatively modest figures of £15m in 2021/22 and £70m in 2022/23.

In subsequent years, however, receipts are poised to climb more steeply: by £165m in 2023/24, £290m in 2024/25 and £445m in 2025/26, netting the Treasury an extra £985m over the five years.

Get in touch

If you think you may be affected by the freezing of these thresholds, or if you would like any other help and advice with your estate planning, give one of our advisers a call today on 01483 205890.