Inheritance tax web widens as household wealth jumps despite the pandemic

The Office for National Statistics (ONS) has revealed that UK household net worth increased by 8.4% in 2020 despite the effects of the COVID19 pandemic, in stark contrast to the crash in household fortunes witnessed in the 2008 financial crisis, when wealth plunged 13%.

Property contributed to 40.1% of the growth in household net worth, driven by a 7.3% increase in average house prices, and insurance policies and pension schemes accounted for 39.7%.

Jason Hollands. Managing Director at wealth manager and financial planners Tilney Smith & Williamson observes that since the pandemic struck the authorities’ economic response – including the stamp duty holiday and monetary stimulus - has had some perhaps unintended consequences, driving up property and asset prices.

‘This of course disproportionately benefits the better off, but these effects can quickly go into reverse so those sitting on wealth assets might not always have it so good,’ he said.

‘One thing these figures do confirm is that as property and asset prices have risen, the freezing of the inheritance tax (IHT) threshold at £325,000 over the last 17 years has dragged more and more families who would not consider themselves massively well off into quite a punitive tax regime.

‘All families quite rightly want to secure their dependents’ financial future and one way of doing this is by leaving them an inheritance.

‘If the IHT nil-rate threshold had risen with inflation it would be £100k higher by now. With the allowance frozen until at least 2026, ever more families are going to get drawn into the IHT web.

‘The good news is that there are many ways to mitigate or even eliminate an IHT liability, including life-time gifting, maximising pensions as these can be passed on tax efficiently and investing in assets that will attract business relief. It is however vital to plan ahead.’