The proportion of deaths subject to inheritance tax in the UK is projected to nearly double by 2029, according to forecasts.
- Currently, 5.1% of deaths are subject to the tax, a figure that is expected to rise to 9.5%
- This increase will see an additional 30,000 deaths liable for inheritance tax each year.
- Frozen thresholds and changes to non-dom rules create opportunities for financial advisers.
- UK government reforms are expected to generate increased complexity in wealth management.
The proportion of UK deaths subject to inheritance tax is expected to nearly double from 5.1% in 2022/23 to 9.5% by 2029/30, indicating a significant shift in financial planning for many individuals. This change translates to over 30,000 additional deaths being taxed each year, increasing the number from 35,000 to about 66,600, as predicted by Utmost Wealth Solutions.
Frozen tax thresholds and changes to non-domicile (non-dom) rules are identified as key factors driving the rise in taxable estates. These changes offer significant opportunities for financial advisers to assist clients with managing wealth transfer effectively.
The Office for Budget Responsibility (OBR) reports that existing freezes on the Nil Rate Band and the Residence Nil Rate Band are expected to continue until 2029/30. This policy prolongation is accompanied by important revisions to Business Relief and Agricultural Property Relief, alongside proposed changes to pension death benefits.
Reforms targeting Resident Non-Doms (RNDs) will now unlink domicile status from inheritance tax obligations. RNDs residing in the UK for more than four years will face UK taxes on global income and gains, and they will remain liable for inheritance tax upon leaving the UK if they have been UK residents for 10 out of the last 20 years.
Marc Acheson, a global wealth specialist at Utmost Wealth Solutions, remarked that inheritance tax, though often unpopular, is perceived as ‘voluntary’ because people can take measures to mitigate its impact. He noted that the Chancellor’s reforms could provide increasing opportunities for advisers as more individuals seek guidance under the evolving rules.
Short-term expectations suggest a heightened demand for advisers as individuals aim to reassess their financial plans. A focus on limiting liability might lead to early lifetime gifting and an increased utilisation of trusts and pension funds, as fewer assets remain exempt from inheritance tax.
Experts anticipate a significant rise in inheritance tax liabilities in the UK due to policy changes, prompting strategic planning needs.
