Inheritance tax intake is expected to rise sharply over the next five years, according to the latest forecast update from the Office for Budget Responsibility (OBR). In its ‘Economic and fiscal outlook’ published in March, the amount of inheritance tax forecast for collection is expected to top £6.2 billion by 2021-2022.
So what’s caused the OBR to up its forecasts? Two significant factors spring to mind. First, UK house prices show no signs of slowing down. Rising house prices mean more people finding themselves with properties valued in excess of the nil-rate band, which has been fixed at £325,000 per person since the 2010-2011 tax year.
Importantly, it seems the introduction of the residence nil-rate band isn’t expected to put any kind of a dent in HM Treasury’s anticipated inheritance tax intake. As a reminder, since 6 April, an additional £100,000 for the current tax year can be claimed by the estates of homeowners who leave their residence to direct descendants.
The other key factor is the continued growth of UK stock markets, which have defied expectations since the vote for Brexit and the election of President Donald Trump. The performance of the FTSE 100 Index has been remarked on, but smaller companies have also done extremely well too, and the Alternative Investment Market (AIM) in particular. In fact, the last 12 months have been a great time to be an investor in UK equities, and many of our clients are sitting on strong gains. And much of those gains could ultimately end up as inheritance tax liabilities.
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