Page 11 - Budget Newsletter - March 2023

ESTATE PLANNERS

Nil rate band

The nil rate band reached its current level of £325,000 in April 2009 and, following the
announcement in the Autumn Statement, will remain at that level until 5 April 2028. Had the nil rate
band been increased in line with CPI inflation since 2010, it would be about £465,000 in 2023/24 -
£140,000 higher.

The frozen nil rate band drags more estates into the IHT net, an effect exacerbated by higher
inflation. If your estate is already potentially liable to IHT, the 2028 freeze could mean it will suffer
more tax in the future if property and/or investment values increase. Since April 2009, average UK
house prices are up by about 70%, according to Nationwide, and UK share prices have more than
doubled (March 2009 marked their low point in the wake of the financial crisis).

Residence nil rate band

The residence nil rate band (RNRB) came into effect on 6 April 2017 with an initial figure of £100,000.
For 2021/22 through to 2027/28 inclusive, the RNRB is frozen at £175,000. The threshold above
which the RNRB is subject to a 50% taper reduction is also fixed until 5 April 2028, at £2,000,000,
meaning it is lost altogether for estates valued at £2,350,000 or more (£2,700,000 on second death
for couples where the RNRB is unused on first death). While the RNRB does help to ease the burden
of IHT for many estates, it is by no means a panacea.

IHT yearly exemptions

The frozen nil rate bands make the yearly IHT exemptions all the more important:

• The £3,000 annual exemption. Any unused part of this exemption can be carried forward one tax
year, but it must then be used after the £3,000 exemption for that year. So, for example, if you
made a gift of £1,000 covered by the annual exemption in 2021/22, you can make gifts totalling
£5,000 covered by the annual exemption in 2022/23 by 5 April 2023.

• The £250 small gifts exemption. You can make as many outright gifts of up to £250 per individual
per tax year as you wish free of IHT, provided that the recipient does not also receive any part of
your £3,000 annual exempt amount.

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