On 11 February 2013, the government announced that the inheritance tax ("IHT") nil-rate band will be frozen at its current level (£325,000) until tax year 2017/18. The tax savings this will generate are to be used to part fund the government's recently announced reforms to the social care system.
IHT is chargeable on assets held at death and certain lifetime gifts which are over and above the 0% threshold known as the "nil-rate band". The rate of tax on death is 40%, subject to any available reliefs and exemptions. The nil-rate band has been fixed at £325,000 since tax year 2009/10 but was expected to rise in line with inflation from tax year 2015/16 as required by Finance Act 2012.
The announcement is disappointing for those to whom IHT applies (those domiciled in the UK or those that have assets situated here). The frozen nil-rate band will gradually see a greater proportion of a person's estate pushed over the 0% threshold as inflation increases. The Society of Trusts and Estates Practitioners (STEP) has reported that the frozen nil-rate band could bring an extra 5,000 estates in to the IHT net by 2019.
The social care reforms were announced by the government on the same day. The changes include a significant increase on the value of capital assets that a person is permitted to hold in order to qualify for public funding. This currently stands at £23,250 but will increase to £123,000 when the reforms are expected to come into effect in April 2017. This will mean that more elderly people will qualify for funding. A cap of £75,000 has also been imposed on the financial contributions that an elderly person is required to make towards their care.
For further information on these announcements or to discuss your IHT planning generally, please contact Fay Copeland or your usual Wedlake Bell adviser.
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