The Government’s Inheritance Tax Raid: Single Homeowners Face Significant Inheritance Tax Bills from 2027
From 2027, single homeowners in England with average-priced homes and moderate retirement savings could face substantial inheritance tax (IHT) liabilities due to changes announced in the Autumn Budget by Chancellor Rachel Reeves.
According to Quilter’s analysis, a single homeowner with a property valued at £308,782 and retirement savings of £459,000 will incur a £107,000 IHT bill starting in 2027. This increase follows the decision to freeze the nil-rate band at £325,000 and the residence nil-rate band at £175,000 until 2030.
As property values and asset prices rise, more estates will be subject to IHT. From 2027, pensions will also be included in IHT calculations, further increasing liabilities for many. For example, a single homeowner in London with an average property value of £525,586 and the same level of retirement savings would face a £194,000 IHT bill in 2027, up from £10,000 today.
Regions like Northern Ireland, Scotland, and Wales, traditionally exempt due to lower property prices, will also be impacted. Estates with moderate retirement savings could face IHT bills of £59,821, £62,818, and £70,300, respectively. With house prices forecast to rise by 4% in 2025, these figures are expected to increase further.
Roddy Munro, a tax and pensions expert at Quilter, warned that freezing the nil-rate bands and including pensions in estate calculations would bring more average earners into the IHT threshold. “This tax, originally targeting the very wealthy, now disproportionately affects those with modest estates. Variations in property values across the UK turn IHT into a postcode lottery,” he said.
Munro emphasised the importance of proactive planning, such as early gifting and exploring options like onshore bonds placed in trusts, to reduce taxable estates. Trusts, he explained, not only help lower IHT liabilities if the transferor survives seven years but also provide flexibility and control over how assets are distributed.
We will be discussing with you best ways to mitigate IHT at your next Annual Review.
UK Inheritance Tax Receipts
National Insurance gap fill – six months to top up Deadline Approaching to Backdate National Insurance Contributions
There is now less than six months to top up National Insurance (NI) contributions before the backdating deadline of April 5, 2025.
The deadline, extended last year due to high demand, allows individuals to backdate NI contributions as far back as April 2006 to boost their state pension. After this date, gaps can only be filled from 2019 onward, potentially losing up to 13 years of contributions.
Paying voluntary NI contributions could significantly enhance retirement income but that it isn’t suitable for everyone. It is important to assess personal circumstances, noting that some individuals may have sufficient time to fill gaps without making voluntary contributions.
Please check your NI records before the deadline, as taking action could result in being “thousands of pounds better off” in the long run. As always, please contact us if you have any questions.
Anna Griffiths – Clear Technical Manager
Investing Vs Consuming
People think about incremental gains when it comes to savings, e.g. cutting out a daily coffee and investing the money Strangely though, every two years people spend hundreds of pounds for a broadly identical phone.
It’s partly down to fantastic marketing from Apple.
But we seem to be in the habit of buying a new iPhone now more than anything else. Just like your daily commuting coffee. We are now socially accustomed to the cycle: come to the end of the contract, get offered a new phone, reluctantly barter a little about the price, repeat every two years.
So the following data gives a different perspective (but is absolutely in no way, investment advice!).
Nowimagine if, rather than buying a new iPhone every two years, you invested the price of the phone into Apple shares on the day the new model launched.
The table below shows the cost of the phone, and then what that amount of Apple shares would be worth as of the launch of the iPhone 16.
Buying a new model every two years would have cost you £6,000, but if you had put that into shares you would have £50,000.
Obviously, no one would do this, it would be a weird investment approach, but most people don’t buy the phone upfront. However, this does illustrate the potential which could come from managing your unthinking spending, particularly on big ticket items, that you might have transformed into a habit. Do you really need a bigger television or to upgrade Siri? Source: 7IM/Factset/Apple
No (fat) tails on the FTSE
Instead of talking politics, let’s talk about the huge tech rally recently, especially in the U.S. and the poor unloved UK equity market.
Looking at this year
NASDAQ (US) is up 24%
FTSE100 (UK) is up 7%
Despite AI, over the last three years the FTSE 100 has beaten the NASDAQ!
Investing £100 in the FTSE 100 three years ago you would have £127, the same amount invested in NASDAQ would give you £122.
Source: FactSet/7IM, total returns. Past performance is not a guide to future returns.
This counter-intuitive fact gives us the chance to mention that Losses matter.
If you held the NASDAQ you would have had a wild ride and would have been struggling until January 2024, that is assuming you stayed invested! And the reason for that? Fat, Tails.
The following chart counts the number of days where the two markets moved by various amounts.
The far left and the far right are the “tails” – the extreme values. And there are a lot more of them in the NASDAQ? Those are the “fat tails”.
And while it’s great to have a load of big UP days, it’s only good if you don’t have a load of big DOWN days too.
Percentages are cruel: A 50% loss needs a 100% gain to get back to the flat.
And it happens at a small scale too. If you make 1%, and then lose 1%, you end up with less than you started. This is true however your returns come in, whether you make it and lose it, or lose it and make it you’ve lost 1p.
So, the FTSE 100 wins by being a lot skinnier than the NASDAQ; having lots of boring, small positive days, over and over again.
The value of investments can go down as well as up and you may get back less than you originally invested. Any reference to specific instruments within this article does not constitute an investment recommendation. Source:7IM
UK Report on jobs
Steepest decline in permanent staff.
Weakest rise in permanent starting pay since early 2021.
Vacancy numbers fall again October.
It’s – sometimes – relative
We can be scathing about any aims for the UK being the ‘fastest growing economy in the G7’, but, honestly, who cares about how we’re doing relative to Canada or Italy or Japan?
Economic growth is something in which most people care more about absolute results than relative ones. But when human psychology gets involved that’s not always the case. Sometimes we will prefer a worse absolute outcome if we personally get a better relative one.
The most famous example is with income:
World 1 – You earn £100,000 per year; others earn £200,000.
World 2 – You earn £80,000 per year; others earn £40,000.
More than half of people would choose World 2 as they are winning in relative terms.
When human psychology is involved though there’s more!
Ask slightly different questions and you get different answers:
Take holidays for example:
World 1 – You get 4 weeks holiday per year; others get 8 weeks.
World 2 – You get 2 weeks holiday per year; others get 1 week.
People would be back in World 1, give me as much holiday as possible, who cares about anyone else!
Or flip it again, assuming IQ is a good measure, ask about intelligence:
World 1 – Your IQ is 130; others average 150.
World 2 – Your IQ is 110; others average 90.
People would prefer to be the smartest in a dumber room.
Let’s try potholes:
World 1 – There are 3 potholes a mile in your neighbourhood: 1pothole per mile in others.
World 2 – There are 4 potholes a mile in your neighbourhood: 7potholes per mile in others.
Just generally less potholes please!
Finally, and this is VERY interesting in the current world:
World 1 – Your country spends 3% of GDP on national defence; other G7 countries spend 4%.
World 2 – Your country spends 2% of GDP on national defence; other G7 countries spend 1%.
No-one cares about GDP, but when it comes to defence. That’s a different matter!
If you were to try the above questions on your friends or colleagues, you will see the choices are all about social context, just as much as the number in front of them.
* All questions/scenarios here extrapolated from Solnick, Sara & Hemenway, David. (2005). Are Positional Concerns Stronger in Some Domains than in Others?. American Economic Review. 95. 147-151. 10.1257/000282805774669925.
Source:7IM.
Marathons 2025
We are pleased to advise that Gary Beach and Charlotte McIntyre are once again running the Brighton Marathon to raise funds for the charity next year. Also, Gary will be undertaking the London Marathon for us! So both are busy training. Donation details to follow.
But we do have two more place available for the Brighton run, so please let us know if you, or someone you know, would be interested in challenging themselves and helping the charity.
Contact [email protected].
Don’t forget to get your orders in for Clear Minds Christmas cards:
