IHT BROCHURE (1) - Flipbook - Page 8
As with many facets of 昀椀nance and taxation, IHT is a 昀椀eld marked by intricacies and
layered nuances. Even as the tax continues to play a central role in UK 昀椀scal discussions, a
concerning dimension emerges a vast number of individuals, particularly those on the brink
of retirement or in their post-retirement phase, grapple with a lack of clarity around IHT’s
mechanics, potentially leading to unwelcome surprises for their heirs.
Understanding IHT Thresholds and Rules
A study by retirement specialist Just Group has thrown light on a somewhat alarming reality.
Many retirees need to be made aware of the current thresholds and the foundational rules
governing IHT. Speci昀椀cally, 59% of retirees over 55 confessed to being unaware of the
exact value threshold that triggers the imposition of Inheritance Tax. Further compounding
this lack of knowledge, half of the same age demographic admitted to a fuzzy understanding
of the tax’s governing principles.
Such gaps in understanding could have far-reaching rami昀椀cations. Assuming their
inheritance is below the taxable limit, families might need help to prepare, leading to
unplanned 昀椀nancial strain and complications at a time of bereavement.
Frozen Nil-Rate Band and its Impacts
One of the key contributors to the IHT conundrum is the frozen nil-rate band. Laura Suter,
head of personal 昀椀nance at AJ Bell, elucidates the consequences of the band’s stagnation
at £325,000. Had this rate adjusted in line with inflation, it would hover around half a million
per person in the current year. Failing to adjust for inflationary trends means estates are
burdened with almost £70,000 of extra inheritance tax, catching many unaware.
Enter the residence nil rate band (RNRB), a mechanism introduced by George Osborne
in 2017. Designed as a tool to allow couples to leave an estate worth £1m devoid of
inheritance tax, the RNRB, though bene昀椀cial in its intent, carries a lattice of complex criteria.
This further muddys the waters for the average citizen and renders many ineligible for the
RNRB, compelling them to grapple with an IHT allowance reminiscent of 2009. This dual
freeze - both of the nil rate band and the RNRB - has placed undue 昀椀nancial pressure on
estates, amplifying the IHT they owe by up to £169,000 in some instances.
