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‘Stealth grab’ fury as death tax burdens on grieving families soar | Personal Finance | Finance


And a recent inheritance tax grab will mean much more people will change into higher-rate taxpayers for the primary time on death duties. As many as 10,000 bereaved relatives already face demands for an additional £1billion after payment thresholds were frozen until 2025/26 by Prime Minister Rishi Sunak when he was chancellor.

But last week Chancellor Jeremy Hunt prolonged the freezing until 2027/28. It will see £42.1billion of inheritance tax (IHT) flow into the Treasury over six years.

The figures will rise from £6.7billion this financial yr to a record £7.8billion in six years’ time. If property values increase at the degrees expected, many more estates shall be liable to pay the tax.

IHT is due at 40 percent on the quantity of each estate above a valuation of £325,000.

This includes savings, investments, properties and possessions equivalent to jewellery, cars and art.

The result shall be that grieving families fork out collectively £1billion extra in IHT in 2026-27 and 2027-28, in response to calculations by wealth manager Quilter.

It is because of a “fiscal drag” where by inflation and earnings growth push more taxpayers into higher tax brackets.

Investment service Wealth Club worked out that this implies the common IHT bill will soar from £216,000 in 2019-20 to £297,793 in 2025-26 and nonetheless to £336,605 for 2027-28 as a result of the impact of frozen thresholds combined with rising inflation.

Alex Davies, pictured far right, from Wealth Club, said: “Freezing the inheritance tax threshold for a further two years is a tax increase on the sly.

“It won’t appear on a listing of tax increases but it’ll not be too long before its impact is felt. It’s not only going to be the super-rich, it’ll be the 1000’s of hard-working families caught within the cross hairs of high property prices and frozen IHT allowances.”

Steve Wilkie, of the equity release firm Responsible Life, said: “Inheritance tax is a regressive money cow that grows harder to defend by the yr.

“This fiscal dragnet presents increasing numbers of retirees with an unattainable selection between their very own financial security and the power to pass on to family members the wealth on which tax has already been paid.

The IHT threshold has been frozen for thus long now that folks have grown used to it but stealth tax rises like this needs to be called out for what they’re.”

Mr Wilkie added: “As an alternative, Britain needs a progressive tax policy that’s as transparent because it is fair and which doesn’t mean the older generation continues to be punished for financial prudence.”

Calculations from tax firm RSM show that 10,000 more families could find yourself paying IHT during those two years consequently of the thresholds not rising with inflation. The nil-rate band – the quantity that will be passed on before IHT is due on the estate – has been stuck at £325,000 since April 2009.

Extending the freeze until 2027-28 means this can have been unchanged for nearly 20 years – despite soaring house prices pushing many estates above the edge.

Average house prices have risen by £140,000 between 2009 and 2022, in response to data from HM Land Registry. The residential nil-rate band, introduced in 2017 to account for house prices increasing the scale of estates, has also been frozen at £175,000.

Quilter estimates that, if this had risen in step with inflation, the nil-rate band could be price £351,520 in 2027-28 with the residence band price £189,280.

This may see fewer families caught within the tax trap because a mean couple would have £80,000 more in allowances.

In 2009, only 2.7 percent of estates paid death duties. But this has jumped to shut to 4 percent.

In 2019-20, the newest yr for which data exists, 23,000 families paid death duties.

Andrew Tully, of monetary services provider Canada Life, said: “While IHT has historically been a tax of the very wealthy, that is clearly now not the case.

“That is now a priority for larger sections of society because the IHT tax net widens.”

Even with house prices expected to fall, Quilter’s Shaun Moore doesn’t expect this to affect the variety of estates caught within the IHT net.

He said: “While house prices may soon cool as a result of the list of monetary concerns facing the UK – equivalent to inflation, energy prices and a European war – that is unlikely to take the sting out of IHT bills for a while.”

James Ward, of Kingsley Napley LLP, said: “IHT is regarded by some as a double taxation given people already pay income tax during their lifetime and is commonly described as some of the hated taxes.”

The Treasury said: “We don’t comment on speculation around tax changes.”

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