A new HMRC 40% tax threshold alert has been issued, warning that thousands of UK families risk being caught out by inheritance tax (IHT). There is a 40% charge on parts of an estate above the threshold.
Financial planners say a mix of static thresholds and escalating house prices means what was previously a charge reserved for the affluent is now affecting average families. Liabilities can reach up to 40% on portions of an estate. The standard inheritance tax threshold, known as the nil-rate band, has remained at £325,000 since 2009, while the additional residence allowance has similarly been frozen.
During this time, property prices and investments have climbed dramatically, pushing more estates beyond the threshold. The outcome is a marked increase in what is termed 'fiscal drag', where people are ensnared by tax rises without any adjustment to rates.
Experts Warn of Stealth Tax
Scott Gallacher, Director and Chartered Financial Planner at Rowley Turton, said families are being dragged into the net 'by stealth'. He said: 'Frozen thresholds and rising asset values are quietly dragging more and more families into scope, often without them realising.'
'The reality is that IHT is becoming a middle-class issue by stealth. Many families are being caught not because they've actively built significant wealth, but simply because asset values have risen over time. For some, it comes as a genuine surprise. They don't feel wealthy, yet their estate may face a 40% tax charge on part of their assets.'
How to Mitigate Inheritance Tax
Eugen Neagu, Director at N2 Asset Management, said: 'With timely and sensible planning, such as using allowances, exemptions and lifetime gifting, many people can legally reduce or even eliminate an IHT bill altogether.'
Rob Mansfield, Independent Financial Adviser at Rootes Wealth Management, added: 'More and more families are feeling the IHT squeeze. It's a combination of it being a poorly understood tax and the frozen rates dragging more people into the net. I've met with people terrified of inheritance tax who are never likely to pay it and others who are blissfully unaware of the six-figure bill their families face on their death.'
