Inheritance tax is imposed on the estate of a deceased person before it is distributed to their beneficiaries. In the UK, this tax is levied at a rate of 40% on estates worth over £325,000. This threshold has remained unchanged for over a decade ...
The Office for Budget Responsibility has forecasted that inheritance tax receipts will continue to rise, reaching a staggering £9.7bn a year in 2028/29. The Institute for Fiscal Studies has also predicted that the number of estates liable for inheritance tax will rise to over 7% by 2032/33.
These alarming statistics paint a grim picture for UK homeowners, especially for those with valuable assets and properties!
One of the main reasons for the significant increase in inheritance tax revenue is the frozen threshold. With the threshold remaining unchanged for over a decade, more and more families are being caught in its grasp. This, combined with the rising value of assets and properties, means that even middle-class families are now facing hefty inheritance tax bills. This is a stark contrast to the original intention of the tax, which was to target only the wealthiest individuals.
The freeze on the inheritance tax nil rate band has also created a ripple effect in the housing market, exacerbating the already dire housing crisis. As the threshold remains unchanged, older homeowners are incentivised to remain in larger homes to capitalise on the allowances.
This has resulted in a shortage of properties in the market, making it difficult for younger buyers to get onto the property ladder. This, in turn, has a domino effect on the entire housing market, creating a vicious cycle.
The Building Society Association (BSA) has called on the government to review inheritance tax and make necessary reforms to alleviate the pressure on UK homeowners. The BSA argues that the current tax system is 'ineffective' and is incentivising older homeowners to remain in larger homes, creating a shortage of properties in the market.
This would encourage older homeowners to downsize, freeing up more properties for younger buyers. They also recommend other measures, such as regulatory changes that would allow lenders to issue more 5% deposit mortgages. This would provide more liquidity in the market, allowing families to move up and down the property ladder, and freeing up more first-time buyer homes.
While the record-high inheritance tax receipts may seem like a positive sign for the UK's economy, it has also brought to light the pressing issue of the exacerbation of the housing crisis. The frozen threshold, combined with rising asset values, has resulted in more families being affected by the tax than originally intended.
I feel the government needs to address this issue urgently to ensure that inheritance tax does not continue to exacerbate the housing crisis.
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