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Inheritance Tax Thresholds Fixed Until 2031: Implications for Estates & Succession

The UK has extended the freeze on inheritance tax nil-rate and residence bands until 5 April 2031—learn who it impacts, and how to plan proactively under this fixed threshold regime.

By NomadicTax Research Team · 5-8 min read

What Has Been Confirmed?

  • The nil-rate band (NRB) remains at £325,000 per individual. (gov.uk)
  • The residence nil-rate band (RNRB) remains at £175,000.
  • The taper threshold, the estate value above which the RNRB begins to phase out, remains fixed at £2 million.

These fixed thresholds, previously confirmed through 2029-30, are now extended for an additional one year—i.e. until 5 April 2031. (gov.uk)

Who Is Most Affected?

  • Estates with values close to or above £500,000, where RNRB and NRB usage matters greatly.
  • Families planning successions, especially with property or high-value estates.
  • Those who previously assumed these bands would increase with inflation—expectation management required.

Examples of Estate Impacts

  • Estate valued at £400,000, includes main residence passing to children: below taper threshold—both NRB and full RNRB apply, leaving £100,000 taxable (i.e. £400,000 − £325,000 − £175,000 = £0 taxable). Actually over-relieved; in this case no IHT.
  • Estate valued at £2.5 million: In this case, the £2 million taper threshold means RNRB reduces by £1 for every £2 over this threshold. Value over threshold = £500,000 ⇒ RNRB reduces by £250,000, leaving £175,000 − £250,000 = nil RNRB. Only NRB applies and remainder taxed.

Planning Steps & Mitigation

  • Gift early: Lifetime gifts (possibly exempt transfers) can reduce estate value if done well ahead of death.
  • Use trusts carefully: Trusts may help but can invoke charges themselves—seek professional advice.
  • Review property ownership and transfers: Joint ownership, spousal exemptions remain useful.
  • Consider trusts or life assurance to cover anticipated IHT liabilities for large estates.

Strategic Implications

  • The freeze on thresholds, combined with inflation, effectively increases IHT for many estates—smaller or “middle wealth” estates will feel squeezed.
  • Tax planning becomes more important now—decisions about transfers, gifting, property ownership, wills must consider fixed IHT bands.
  • For digital nomads or those considering non-UK domicile, must assess where IHT applies and whether estate-planning in multiple jurisdictions needed.

Category: Entity Setup
Tax Home: UK
Author: NomadicTax Research Team
ReadTime: 6 min
Published: true

Sources

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