Inheritance tax thresholds would be £270,000 higher by 2027/28 if they had risen in line with inflation, according to new analysis from Chesnara Life (UK).
The onshore investment bond provider calculates that the £325,000 nil rate band for IHT would be set at £537,000 by the 2027/28 tax year while the £175,000 resident nil rate band would be £233,000 if both had risen in line with inflation, taking them to a combined £770,000 before IHT would kick in.
However, the nil rate band has been frozen since April 2009 and the resident nil rate band since April 2020, with both set to remain frozen until April 2030. The result is that total IHT nil rate bands for an individual remain at £500,000, despite rising property prices.
Government data shows the percentage of estates likely to be subject to IHT will rise to 7% by 2032/33, nearly double the 4% which paid the tax in 2020/21.
The inclusion of unused defined contribution pensions in estates from 2027/28 will see IHT liabilities rise further. The move is expected to raise an additional £5.46 billion in IHT by 2030/31.
Around 10,500 estates will have an IHT liability in 2027/28 which they would not previously have had and a further 38,500 will pay more IHT as a result.
Mark Lambert, head of onshore bond distribution at Chesnara Life (UK) Ltd, said: “The freeze on IHT nil rate and resident nil rate bands has already had a significant impact on estate planning and means ever increasing numbers of advisers and their clients will need to plan for IHT.
“The inclusion of unused pension funds in estates from April 2027 will add to that pressure and is already having an impact as advisers and clients look for strategies.”
Lambert said the firm is seeing growing interest in onshore investment bonds and trusts from advisers and is seeking to expand its support across estate planning solutions.
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