Inheritance tax revenue: Should Sunak scrap the IHT threshold freeze as more families hit? | Personal Finance | Finance

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In March, Chancellor Rishi Sunak froze the inheritance tax (IHT) threshold at £325,000 until 2026, in hopes to bring in more revenue for the Government purse because more families will get caught by the tax as house prices rise – This is what’s known as fiscal drag. The threshold means you will not be charged inheritance tax on your property worth up to £325,000, but any capital you own over this amount will be taxed at 40 percent.

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Homeowners, who leave their home to a direct descendant, however, pay no tax on an additional £175,000, giving a total allowance of £500,000 which can be passed on tax free.

Luke Worthy, chartered financial planner at Kingswood, said: “With hundreds of billions of pounds added to the UK’s debt over the pandemic, the Chancellor will be looking at preserving and increasing every revenue stream possible.

“In addition, more people are finding themselves caught by IHT due to the significant rise in property prices over the last two years. The increase in IHT receipts is therefore largely unsurprising – over the coming years more and more people will find themselves subject to a tax they might have thought only applied to the very wealthy. Early estate planning is key.”

UK house prices grew at the fastest pace in 15 years over the past three months, with the average home valued at £20,000 more than this time last year, according to Halifax.

Meanwhile, the headline rate of inflation in the UK has risen to 5.1 percent – its highest rate in a decade.

The speed of increase has taken forecasters by surprise – last month the Bank of England said it expected inflation to peak at five percent, but not until April next year.

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Myron Jobson, personal finance campaigner at interactive investor, said inheritance tax has ceased being a tax on the rich.

He said: “IHT increasingly feels like a raid on hard working families, rather than the very wealthy it was originally targeted at.”

TaxPayers’ Alliance research director Duncan Simpson also condemned the “death tax”.

Mr Simpson said: “Coughing up for a huge IHT bill is a horrible thing for grieving relatives to handle.

“At the very least, thresholds should be raised to £1million to protect more taxpayers from these horrid bills.”

Do you think Mr Sunak should scrap the IHT threshold freeze and raise the threshold to £1million? Vote now and let us know more about what you think in the comments section below.

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