IHT freeze could lead to wave of reclaims in 2022

The freeze on Inheritance Tax (IHT) allowances for five years is set to net the Treasury almost £1bn in extra revenue, but there could be a wave of reclaims next year if house price predictions are correct, according to NFU Mutual.

Chancellor, Rishi Sunak, froze the nil-rate band at £325,000 and residence nil-rate band at £175,000 until 2026 in his Budget last week.

The freeze is expected to raise £985m for the Treasury over the next five years as NFU Mutual suggested the move will “allow inflation to do his job for him”, with more people becoming caught in the IHT net between now and 2026.

However, the Office of Budget Responsibility (OBR) has predicted that house prices will increase by 5.7% in 2021, before falling back 1.7% next year. The forecasts suggest that house prices will then increase again by 0.8% in 2023, by 3.9% in 2024, and by 4.3% in 2024.

IHT is charged at 40% on assets above the nil-rate bands, but a reclaim can be made on any fall in value of property, if sold by the executors, within four years of death. 

NFU Mutual chartered financial planner, Sean McCann, warned that a fall in house prices in 2022 could see more families reclaiming overpaid IHT on their properties.

He commented: “Freezing the nil-rate band and residence nil-rate band means more and more people will fall into the IHT net over the next five years.

“The OBR has also forecast house prices to significantly increase this year before decreasing next year. If house prices do go down next year, this could create a wave of families reclaiming overpaid IHT on property.”

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