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Will Budget inaction lead to further inheritance pain? 

Jordan McLean
Written by
Jordan McLean
Will Budget inaction lead to further inheritance pain? 

After a couple of years of disruption due to the Covid pandemic, it’s almost time for the next full Budget – the first since October 2021. 

A lot has changed since the last Budget, with two changes in Prime Minister and three Chancellors of the Exchequer gracing the doors of Downing Street. On 15th March 2023, Jeremy Hunt will stand up and present his first full Budget as Chancellor. 

Frozen IHT threshold

The Autumn Statement in October 2022 confirmed that the current IHT threshold of £325,000 would remain in place until April 2028, and while we’ve recently seen several dramatic U-turns on Government policies, can we expect to see something similar in the upcoming budget? 

In a word, “no” – but no change could still mean that more people are hit by an unexpected IHT bill. 

So firstly, what reasons do the Government have for keeping the current status-quo? Well, IHT receipts for April 2022 to January 2023 totalled £5.9 billion, which is £0.9 billion higher than the same period a year earlier. With an income stream that lucrative you can see why the Government would be reluctant to reduce its income here, especially given the current economic climate. 

Under the current nil rate band of £325,000, around 5% of estates find themselves facing an IHT bill. It’s projected that the continued freeze in the nil rate band will see this figure double to 10%, which is great news for HMRC, but less welcome news for the general population. 

Increasing property value

The main driver for this is the continued increase in the value of property. Though UK house prices have fallen slightly in recent months, they remain well above pre-pandemic levels and over the past decade we have seen property prices increase significantly. As a result of this, the value of the average property in the UK is currently around £295,000 – not so far from the nil rate band of £325,000. When this nil rate band was introduced in 2017, the average property value was closer to £245,000, leaving a lot more room to manoeuvre before estates faced an IHT bill. 

There is some good news for families, as family property left to direct descendants also benefits from a £175,000 boost, which doubles for spouses. This means that you can effectively leave up to £1m to children and grandchildren before IHT kicks in, helping to ease the pressure for some. 

However, due to the continued rise in property values, one in 42 properties in the UK is now worth over £1m. As the value of an estate also includes any other assets of the deceased, it’s easy to see how more people may be caught with an unexpected IHT bill. 

Barring any surprises, it is unlikely there will be any change to the Government’s IHT stance in this forthcoming Budget. However, as more people are affected by this policy in the coming years, it’s possible that growing pressure could force the Government into revising this approach. 

Dicky Davies, Business Development Director and Co-Founder of Tower Street Finance said: “Realistically, we’re not expecting to see any change in the Government’s current approach to IHT and the £325,000 nil rate band. But if the current turmoil in the property market subsides, and housing prices continue to rise again in the way they have over the past decade, each passing year could see an increasing number of people hit by an IHT bill following the death of a loved one. The question is whether this will fuel enough discontent the force a change before 2028, or whether the Government will stay the course. If the second option proves correct, then more people may find themselves in need of an IHT Loan to help them pay their IHT liability.

Tower Street Finance are the experts in probate lending, with solutions that can help settle an IHT bill and other expenses incurred by an Executor in managing an estate. Find out more about our Inheritance Tax Loan product, or call us on 0343 504 7100.   

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