Chancellor of the Exchequer Jeremy Hunt is reportedly set to announce an extension to the freeze of the inheritance tax (IHT) nil rate band (NRB) until 2027-28.
The freeze is currently in place until 2025-26, though the extension – which is expected during Hunt’s autumn statement next week – could raise as much as half a billion pounds for the Treasury by maintaining the threshold at which IHT is paid.
The NRB has been at its current level – £325,000 – since 2009, meaning the newest extension represents a near 20-year freeze on the rate. The real terms of the freeze’s impact were neatly summarised by David Alexander, chief executive of DJ Alexander Ltd, who said:
“If the IHT threshold had kept pace with inflation it should, by September 2022, be at £464,643 and most of that increase does not include the record levels of inflation experienced this year.
The current level of IHT is 42.9% lower than it would have been if it had kept up with inflation. By 2028, with the current levels of inflation. you could be looking at the IHT threshold being worth a quarter of its 2009 level.”
Figures from HM Revenue & Customs in late October revealed total IHT receipts since April are up to £3.5 billion – £400 million higher than this time last year – with £600 million coming in September alone.
Much of the rise in receipts can be put down to soaring property prices, though with forecasts suggesting house price growth will slow into 2023, there is every chance that IHT receipts may temporarily dip.
However, the impact of any such dip will likely be negligible given Hunt, along with Sunak, is reportedly planning tax rises totalling £60 billion which, alongside spending cuts, will see the government move towards more balanced books, which could give the government room to raise pensions and benefits in line with inflation rather than abandoning the triple lock, as urged by some commentators.
