Budget 2021: Martin Lewis reveals 'clever' tax changes
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The freeze will come into effect in the new tax year on April 6. It will last until 2026, meaning the freeze will be in force for five years.
The Chancellor announced the measure, intended to boost Government revenue via fiscal drag, at the 2021 Spring Budget on March 3.
The Income Tax Personal Allowance threshold will be frozen after its increase to £12,570 next month, while the Higher Rate threshold will rise to £50,270 before the freeze.
Additionally, the pensions lifetime allowance, the annual exempt amount in Capital Gains Tax (GCT), and Inheritance Tax threshold will remain at current levels until April 2026.
It means the Inheritance Tax (IHT) threshold will remain unchanged for 17 years.
As such, more estates will fall into the IHT net, private wealth law firm Boodle Hatfield, has warned.
The firm said increasing asset values, coupled with inflation, will mean thousands more estates will likely be liable to pay the tax over the coming years.
The Inheritance Tax threshold has been fixed at £325,000 since April 2009.
In the subsequent period, the rise in value of assets has meant that more estates than ever before are liable for the tax, which took in £5.2billion for HM Revenue and Customs (HMRC) in 2020.
If the threshold had kept up with inflation it should now stand at £446,000, and this is only set to get worse between now and 2026, Boodle Hatfield said.
Kyra Motley, Partner at Boodle Hatfield, commented on the threshold and the level at which it remains.
“Few would have believed when the Inheritance Tax threshold was set in 2009 that it would still be the same in 2026,” she said.
“A growing number of estates will be hit with a tax bill as a result.
“Inheritance Tax was initially intended to only apply to the very wealthy. However, it has become a tax on Middle England.
“Despite fears of a wealth tax being unfounded, the freeze on the IHT threshold is effectively a stealth increase in the tax rate that impacts a growing number of families every year.”
There is normally no Inheritance Tax to pay if the value of the estate – meaning property, money and possessions – is below the £325,000 threshold.
Usually there isn’t any IHT to pay if the person leaves everything above the threshold to their spouse, civil partner or a community amateur sports club.
Even if the estate’s value is below the threshold, it still needs to be reported to HMRC.
There are ways in which the threshold can be increased.
The standard Inheritance Tax rate is 40 percent.
This rate is only charged on the part of the estate that is above the threshold.
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