Families will be relieved that she didn’t scrap the £175,000 main residence band, which applies when passing on homes to loved ones, as many thought she might.
The primary £325,000 nil-rate band is still there, too. So it’s still possible, with careful planning, for a married couple or civil partners to pass on up to £1million of wealth without loved ones paying a penny in IHT.
That’s the good news. Now for the bad news.
The Tories previously froze IHT thresholds at these levels all the way to 2028 and now Reeves has continued their dirty work.
She’s extended the freeze for another two years, which means IHT thresholds won’t change until 2030 at the earliest.
But it worse than that.
The £325,000 nil-rate band was originally set way back in 2009. So by the time 2030 finally rolls by, it will have been frozen for a staggering 21 years.
This is a classic Treasury stealth tax technique, known as fiscal drag.
It means more and more middle-income families will get dragged into the IHT net, as the value of their homes and investments increases over the years.
Even more will be snared because of a second decision Reeves made today, to charge inheritance tax on any leftover pension pot when people die.
Of course, the IHT freeze isn’t all down to Reeves. Far from it.
A string of Tory chancellors had the opportunity to hike the IHT nil-rate band, given that they were in power for 14 years from 2010.
They ducked it every time.
It was Tory PM Rishi Sunak who extended the IHT freeze until 2026, and Tory chancellor Jeremy Hunt who subsequently stretched it to 2028.
As with so many tax hikes that Labour has been considering in the run up to the Budget, it was the Conservative government who paved the way.
This has given the green light to Reeves to continue their dirty work.
Her IHT raid could have been worse, though.
Many expected Reeves to tidy up the confusing mess of IHT gifting allowances, but she made no mention of them in the Budget.
That’s probably a good thing, given that tidying would have been a euphemism for cutting.
Inevitably, there’s a catch here too.
Every adult gets gifting allowance worth £3,000 a year. Known as the annual exemption, gifts up to that amount are instantly free of IHT.
But £3,000 doesn’t sound very much, does it? There’s a reason for that.
The allowance was set way back in 1981. That means it’s been held at exactly the same level for a staggering 43 years.
If it’s also frozen until 2030 it won’t have changed for almost 50 years.
Again, Reeves is building on the working of earlier governments, both Tory and Labour.
Our inheritances are being relentlessly squeezed by fiscal drag. That will continue whoever is in charge. When will this end? At this rate, never. So get planning.
