Baby boomers in their 60s and 70s are being advised to prepare their finances as more Britons face increased inheritance tax (IHT) liabilities.
Recent data from HM Revenue and Customs (HMRC) shows that IHT receipts for April to June 2024 reached £2 billion, an £83 million increase from the same period last year, marking a 4.1% rise.
The current nil band rate for IHT is set to remain unchanged until 2028, as established by former Chancellor Jeremy Hunt. The new Labour Government, with Rachel Reeves as the current Chancellor, has not signalled any plans to lift this allowance freeze.
Experts warn of the effects of fiscal drag, where frozen tax thresholds amid rising incomes or estate values push more people into higher tax brackets, increasing their tax liabilities. The substantial increase in estate values since the Covid-19 pandemic has contributed to the rise in IHT receipts. Laura Hayward, the tax partner at wealth management firm Evelyn Partners, said:
“With the baby boomer generation now hitting their 60 and 70s, some of that generation’s accumulated wealth is being passed on to children and grandchildren, and getting taxed on the way.
The ‘great wealth transfer’ is also underway because many of the older, weather generations are making lifetime gifts to their families. As the wave of inheritance is set to grow over the next 30 years to a transfer of £5.5trillion, the temptation for successive Governments will be to tap into it to plug gaps in the public finances.
One think-tank economist has already urged the new Chancellor to consider bringing defined benefit pension pots into the remit of IHT, ahead of Rachel Reeves’ first big fiscal statement, expected in October. With both property and financial market assets continuing to surge in value, there is no prospect that this long-standing trend will abate: more estates, and more assets in each liable estate, will be dragged over the frozen thresholds at which IHT kicks in.”
