Inheritance tax thresholds will be frozen until 2030, according to chancellor Rachel Reeves.
The freeze was initially put in place until 2028 by the previous government but this has been extended in today's Budget.
Reeves said she will maintain the freeze for an additional two years, meaning the first £325,000 of an estate will remain tax free.
This increases to £500,000 where a residence is passed on to direct descendants, and £1mn pounds where it is passed to a surviving spouse or civil partner.
“Only 6 per cent of estates will pay inheritance tax this year,” she said.
“I understand the strongly held desire to pass down savings to children and grandchildren so I am taking a balanced approach in my package today.”
IHT is currently payable on death at a rate of 40 per cent on the excess over an initial tax-free amount of £325,000 (the nil-rate band).
According to figures from HM Revenue & Customs, in 2021-22 a record £5.99bn was paid in inheritance tax – up £230mn in a year.
Some 4.39 per cent of deaths led to an inheritance tax bill – up 0.66 percentage points since 2020-21 and the highest proportion since 2016-17.
Meanwhile £15.5bn was transferred tax-free to spouses and civil partners during 2020-21.
In addition to the freeze, Reeves said the government will “close the loophole” by bringing inherited pensions into inheritance tax from April 2027.
“Finally, we will reform agricultural property relief and business property relief.
“From April 2026, the first £1mn of combined business and agricultural assets will continue to attract no inheritance tax at all but for assets over £1mn, inheritance tax will apply with a 50 per cent relief at an effective rate of 20 per cent.
“This will ensure that we continue to protect small family farms with three quarters of claims unaffected by these changes.”
Reeves said she will also apply a 50 per cent relief in all circumstances on inheritance tax for shares on the alternative investment market and other similar markets, setting the effective rate of tax at 20 per cent.
“Taken together, these measures raise over £2bn pounds by the final year of the forecast,” she said.
sonia.rach@ft.com
