This month, the Institute of Fiscal Studies published a report showing that the wealth of those over the age of 80 increased by 45% between 2003 and 2013, leaving experts to predict that number of people paying inheritance tax will rise sharply.
With more elderly people owning their own home and increasing house prices, the number of people predicted to leave amounts worth over £150,000 has risen from 24% to 44% and, subsequently, the amount of inheritance tax paid by families in 2016 hit a record total of over £4 billion.
Inheritance tax is liable on on an individual estate above £325,000. For married couples, there is the possibility that this tax free amount (referred to as the nil rate band) can be doubled to £650,000.00 if the nil rate band of the first spouse to die was unused. From this year the threshold will include an additional allowance, known as the Residential Nil Rate Band. This allowance will start at £100,000 per person from 2017, rising annually up to £175,000 per person in 2020. This means that potentially (subject to the nil rate bands not already having been used either in full or in part) a married couple with a residential property could by 2020 have a nil rate band of up to £1 million.
‘More and more people are finding their accumulated wealth is pushing them over the inheritance tax threshold,” says Hayley Beeching, a specialist in Wills, Trusts and Probate at Verisona Law. ‘The spike in families being forced to pay increased inheritance tax should reduce as higher thresholds come into force, but in order for them to be effective, experts are calling for annual increases to be in line with house prices, rather than the consumer prices used now, because the latter tend to rise more slowly.’
Wealth experts are also recommending that the Government speeds up the introduction of the £1 million property allowance to help slow the number of families paying death duties over the next three years.
The IFS report also declared the number of over-80s expecting to leave an inheritance has increased from 60% a decade ago to 72%, resulting in the number of people who have received or expect to receive an inheritance doubling between those born in the 1930s and those in the 1970s.
But whilst the elderly are finding themselves in a position to leave more to their children than their predecessors, predictions indicate future generations will not be in the same position. Andrew Hood, an economist at the IFS, said ‘Today’s young adults will find it harder to accumulate wealth of their own than previous generations did, due to the sharp fall in home ownership for that group, the dramatic decline of defined benefit pensions in the private sector and the stagnation in their incomes.’
‘There has never been a more important time for older people to seek advice on Wills, Trusts and Inheritance Tax Planning,’ concludes Hayley. ‘The wealth they are able to leave could make a real difference to the lives of their loved ones, especially when a decrease in wealth and home ownership is predicted for future generations.’