The freeze on inheritance tax (IHT) thresholds could cost families £234,000 over the total duration of the potential two-decade long nil rate band (NRB) freeze, up to the 2030 end date, AJ Bell has revealed.

The NRB has been frozen at £325,000 since 2009 and was recently frozen again at the Autumn Budget, with Chancellor, Rachel Reeves, extending the end date to April 2030.

While the residence NRB, which was introduced in 2017, means a married couple can leave a combined £1m tax-free if they leave a property to their direct descendants, AJ Bell found that the overall IHT threshold would be higher if the main NRB had been linked to inflation and the residence NRB was never introduced.

If the NRB was indexed to inflation, AJ Bell calculated it would stand at nearly £555,000 by 2029/30, meaning a couple could pass on an additional £110,000 tax free.

However, if both the NRB and residence NRB were both indexed to inflation, the combined total would be almost £1.6m, knocking up to £234,000 off IHT bills.

Commenting on the findings, pensions and savings expert at AJ Bell, Charlene Young, said: "Frozen tax thresholds punish taxpayers by stealth. When asset prices rise but thresholds fail to track inflation, the result is higher tax bills.

"Astonishingly, the main IHT free threshold won’t have changed in over two decades by the time the freeze is lifted in 2030.

"Although a new exemption has been introduced since then – the residence NRB – these figures show it actually doesn’t compensate for frozen thresholds. Had government done nothing whatsoever other than index the IHT allowance to CPI over the last 20 years then the tax-free limit would be almost £1.1m for a married couple in 2030.

"Families with an estate over this sum stand to pay an extra £44,000 in death duties as a result.

"Had both the NRB and the more recently introduced residence NRB both been index linked by default then the total IHT-exempt threshold would be over £1.58m. Were that the case it would shave £234,000 off IHT bills for some families.

"The tax bill on a £2m estate will be £400,000 thanks to frozen thresholds. That would be reduced to £166,000 if the exemption for the combined assets of a married couple had been uprated.

"For larger estates over £2m the story is even worse, since the residence NRB is gradually tapered away for households with cash and assets to pass on above this level. This is likely to be exacerbated by the inclusion of unspent pensions within taxpayer’s estates from April 2027.

"HMRC’s own estimates show the taxman will be able to take a tax slice from 4,300 new estates thanks to the two-year extension on the freeze."

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