what will the inheritance tax be in 2025?

Sushi Authors

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01-12-2024

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The inheritance tax (IHT) threshold in the UK is a significant concern for many families. Understanding how IHT might change in 2025 and beyond is crucial for effective financial planning. This article explores the current rates, potential changes, and strategies to mitigate IHT.

Current Inheritance Tax Rates and Allowances (2023-2024)

As of the 2023-2024 tax year, the inheritance tax threshold remains at £325,000. This is the nil-rate band (NRB), meaning estates below this value are generally exempt from IHT. However, there are additional reliefs that can significantly increase this threshold for many individuals.

Additional Inheritance Tax Reliefs

• Residence Nil-Rate Band (RNRB): This allows an additional tax-free allowance for the value of your main residence, currently up to £175,000 per person. This is transferable to a surviving spouse or civil partner. The total NRB + RNRB could reach £650,000 for a couple.
• Other Allowances: There are other reliefs available for certain circumstances such as gifts to charities and agricultural property relief. These can significantly reduce your overall IHT liability.

Potential Changes to Inheritance Tax in 2025 and Beyond

Predicting future changes in IHT is challenging. Government policy can shift, influenced by economic factors and political priorities. While no concrete changes are announced for 2025, several possibilities exist:

• Freezing of the Thresholds: One possibility is that the current thresholds (NRB and RNRB) will remain frozen at their current levels. This means the real value of the allowance will decrease due to inflation, effectively increasing the number of estates subject to IHT.
• Inflation Adjustments: Conversely, the government could adjust the thresholds to account for inflation. This would maintain the real value of the allowances.
• Major Reforms: More significant changes are less likely, but potential reforms could involve altering the rates of IHT, introducing new reliefs, or changing the definition of assets included in the estate.

How to Minimize Your Inheritance Tax Liability

Regardless of potential future changes, proactive estate planning is essential to minimize IHT. Here are some key strategies:

1. Utilize Available Allowances

Maximize your use of the NRB and RNRB by ensuring your will is properly drafted to make full use of these allowances.

2. Make Gifts During Your Lifetime

Giving away assets during your lifetime can reduce the size of your estate subject to IHT. However, specific rules apply, and seeking professional advice is crucial. Seven-year rule is important to understand.

3. Consider Trusts

Trusts can be complex, but they offer sophisticated ways to manage assets and potentially reduce IHT. Different types of trusts exist for various situations. Seek specialist advice.

4. Invest Wisely

Consider investments that offer tax advantages, such as ISAs (Individual Savings Accounts).

Planning for the Future: Seeking Professional Advice

The information provided here is for general guidance only and doesn't constitute financial advice. Given the complexities of IHT and the potential for future changes, it's crucial to consult with a qualified financial advisor or solicitor for personalized advice tailored to your specific circumstances. They can help you develop a comprehensive IHT mitigation strategy.

Frequently Asked Questions

Q: Will inheritance tax increase in 2025?

A: It's currently uncertain. The government hasn't announced changes, but thresholds could be frozen or adjusted for inflation.

Q: What is the current inheritance tax threshold?

A: The current inheritance tax threshold is £325,000 (nil-rate band).

Q: How can I reduce my inheritance tax bill?

A: Utilizing available allowances, making lifetime gifts, considering trusts, and investing wisely are key strategies. Seek professional advice.

By actively planning and seeking professional help, you can navigate the complexities of inheritance tax and ensure your legacy is protected. Remember to review your estate plan regularly to adapt to changes in legislation and your personal circumstances.