Last week the Chancellor revealed, in the 2021 Budget, inheritance tax allowances will be frozen for five years until 2026. The freeze has been announced following the governments plans to raise funds to pay back the debt incurred during the coronavirus pandemic.
A five-year freeze on inheritance tax allowances will bring in £985m in revenue, as thousands more people will be required to pay the 40% duty.
Before the threshold freeze was announced, figures suggested, fewer than 30,000 would be paying the tax duty. By 2026, it is expected that more than 36,000 estates each year will pay the tax duty, this figure is up from 25,000 in recent years.
The surge in deaths, as a result of the coronavirus, combined with booming house prices, will push the inheritance tax take to the highest rate ever seen in the UK. The freeze in allowance is expected to bring in £6.6bn by 2026, up from £5.1bn in 2020.
The current tax-free allowance stands at £325,000, which has not changed since 2009. Over the same period of time, average house prices have increased by more than 50%.
Inheritance tax was originally only intended to apply to very wealthy people however, with the rate not having changed since 2009, more people are being caught in the tax net every year.
If the government had increased the threshold in line with raising costs, over time the threshold would stand at £450,000. However, both the £350,000 exemption and the £175,000 allowance will remain the same until 2026 at the earliest. This announcement comes alongside the similar freeze in the personal allowance for income tax and capital gains tax.