Measure
The Chancellor has confirmed that the inheritance tax (“IHT”) nil- rate band (“NRB”) will be frozen at £325,000 until April 2028.
The standard IHT rate is 40% and this is charged on any part of the estate of a deceased individual that is above the NRB. The residence NRB (“RNRB”) will also remain frozen at £175,000 until April 2028. The residence nil-rate band taper, which reduces the available RNRB for estates with a value above a set threshold, will continue to start at £2 million. Qualifying estates of a surviving civil partner or spouse can continue to pass on up to £1 million without an inheritance tax liability.
In addition, inheritance tax can apply to certain lifetime gifts, with inheritance tax applying to the extent the gift(s) exceeds the available NRB. This is relevant to gifts made in the seven years preceding death and to most gifts into trust at any point during lifetime.
Trustees may also need to pay inheritance tax every ten years and/or on distribution of trust assets, based on the amount the trust assets or distribution made exceeds the nil-rate band.
As confirmed in the March 2021 Budget, the IHT NRB and RNRB were due to remain frozen from April 2021 until April 2026. The Chancellor has today announced that these freezes will remain in place until April 2028. This measure is forecast to raise £35 million by the end of the 2027/28 tax year.
All individuals who make lifetime gifts within the scope of IHT or who leave an estate exceeding the NRB (and RNRB where available), and trustees within the scope of IHT.
The measures will be extended until April 2028.
As the government did not want to raise the rates of income tax or NICs in line with the Conservative Party’s manifesto pledge, introducing changes to IHT was one of the revenue raising options available. These measures are expected to raise £35 million until the end of the 2027/28 tax year.
It is worth noting that the IHT NRB has now been frozen at £325,000 since 2009/10.