In the UK, Inheritance Tax (IHT) dynamics have significantly changed, largely because of soaring property values and the Government’s decision to freeze IHT thresholds.

These developments pose challenges and opportunities, especially for those with substantial assets or property.

Previously, IHT was thought to affect only the very wealthy, but this is no longer the case with increasing house prices.

Just five years ago, about 2,200 families annually faced IHT bills. Now, estimates indicate that by 2028, over 5,000 estates each year might be affected.

This rise results from growing property values and unchanged IHT thresholds. The IHT nil-rate band remains at £325,000 since 2009, despite significant inflation and property price hikes.

Thus, more families are subject to IHT. Homeowners leaving their main residence to direct descendants can get an extra £175,000 allowance, the residence nil-rate band, allowing married couples and civil partners to potentially pass on £1 million IHT-free.

However, this benefit reduces for estates over £2 million and vanishes for those above £2.7 million. Consequently, careful planning is vital to prevent hefty IHT bills in the future.

The residence nil-rate band, although helpful, requires strategic estate planning. Individuals with pensionable earnings should also maximise pension contributions, as pensions are outside the IHT scope.

This strategy preserves the residence nil-rate band and ensures sufficient income or capital. Other IHT planning actions, like gifting and establishing trusts, should also be considered. Estate planning must be dynamic, adapting to personal and legal-economic changes.

Grunberg & Co is here to help navigate these complexities, structuring your estate to maximise benefits, minimise tax, and preserve your legacy.