Explore the anticipated £90 billion inheritance tax surge over the next decade due to demographic shifts and frozen allowances. Understand the factors driving this phenomenon and its implications for families and the Treasury.
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New analysis suggests that over the next ten years, baby boomers could potentially be subject to inheritance tax payments amounting to as much as £90 billion. The amount paid to HMRC in death duties by Britons has already reached unprecedented levels, and this trend is anticipated to continue rising in the foreseeable future. A combination of factors, including elevated inflation, a static inheritance tax threshold, and an upsurge in the number of families finding themselves obligated to pay this tax, has contributed to this situation.
The assessment, conducted by Best Invest on behalf of The Telegraph, highlights how the convergence of these factors, along with a decrease in the mortality rate, could result in a substantial windfall for HMRC. Jason Hollands, representing the brokerage firm Best Invest, pointed out that the passing of individuals from the baby boomer generation is projected to peak between 2026 and 2030, leading to a surge in inherited wealth. Hollands further observed that the cumulative impact of frozen tax allowances, combined with shifting demographics, is on track to generate a substantial influx of revenue for the Treasury. It’s not surprising, therefore, that the Chancellor opted to extend the prolonged freeze on the nil rate band.
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The inheritance tax is imposed on estates exceeding £325,000 in value, with an additional allowance of £175,000 allocated for family homes passed on to direct descendants. This threshold has remained constant since 2009, resulting in more than a twofold increase in the number of individuals liable for inheritance tax during this intervening period. Rachael Griffin, a representative of the wealth management firm Quilter, has issued a cautionary statement. She predicts that this challenge will escalate as the baby boomer generation advances in age and eventually passes away, characterizing the situation as a ticking “demographic time bomb.” Griffin accentuated the insight gained from the recent rise in inheritance tax receipts attributed to elevated Covid-19-related deaths, offering a glimpse into the future trajectory.
Responding to these concerns, a spokesperson for the Government emphasized that the overwhelming majority of estates are exempt from inheritance tax, with over 93 percent predicted to have no such liability in the coming years. The tax serves as a revenue source, generating over £7 billion annually to support essential public services that millions rely upon. Additionally, estates belonging to surviving spouses and civil partners are eligible to pass on up to £1 million without incurring an inheritance tax obligation. This amount is notably higher than the average value of a UK home, estimated at £286,000.
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