# IHT additonal allowance increase amounts per year

IHT additonal allowance for main residence increase amounts per year based on CPI

• ### Foreign employment income to be declared on UK SA

Hi,

I'm trying to create a spreadsheet that will forecast IHT charges per year until 2030 starting now. I've read the additional allowance for the main residence if passed to direct descendants will increase by the CPI per year. It's currently, for the year 2020/21, set at £175,000 (£350,000 husband and wife). I've found the following CPI rates via this webpage, are the amounts calculated correctly? Also, is there a better source to get CPI forecasts?

CPI      Extra Allowance

1.00%  £350,000

1.20%  £392,000

1.60%  £454,720

1.70%  £532,022

1.90%  £633,107

2.00%  £759,728

2.00%  £911,674

2.00%  £1,094,008

2.00%  £1,312,810

2.00%  £1,575,372

2.00%  £1,890,446

### Replies (17)

By Matrix
29th Dec 2020 23:47

No the amounts are not calculated correctly which should be clear by looking at your results. You think a property worth £350k will be worth £1.8m in 10 years?

You need to rework your percentages (they are out by 10%).

Thanks (0)
By AbdulHaque
29th Dec 2020 23:57

Matrix wrote:

No the amounts are not calculated correctly which should be clear by looking at your results. You think a property worth £350k will be worth £1.8m in 10 years?

You need to rework your percentages (they are out by 10%).

Sorry, I must have misunderstood how it's calculated. Maybe an example result will help, then I can reverse engineer the correct calculation needed.

So the additional allowance for 2020/21 is £350,000 (combined). If it is to increase by the CPI as per gov guidelines, then if the CPI is 1.2% as per the website I've sited, then is the amount for the year 2021/22 £392,000 (£350,000 * 1.12)?

Thanks (0)
By DJKL
30th Dec 2020 00:05

No, 1.12 is a 12% increase, you need 1.012 for 1.2%, remember 1.2% is 1.2/100, you need to shift the decimal place twice.

There is a good reason they used to do a Scottish O Grade Arithmetic exam and a poor reason they stopped doing it. (Also a no calculator paper, not that many of us owned calculators back then)

Thanks (1)
By AbdulHaque
30th Dec 2020 00:28

DJKL wrote:

No, 1.12 is a 12% increase, you need 1.012 for 1.2%, remember 1.2% is 1.2/100, you need to shift the decimal place twice.

There is a good reason they used to do a Scottish O Grade Arithmetic exam and a poor reason they stopped doing it. (Also a no calculator paper, not that many of us owned calculators back then)

Oh dear me, this is what happens when I don't get at least 8.5 hours of sleep.

How's it now?

CPI Extra Allowance
£350,000.00
1.2% £354,200.00
1.6% £359,867.20
1.7% £365,984.94
1.9% £372,938.66
2.0% £380,397.43
2.0% £388,005.38
2.0% £395,765.49
2.0% £403,680.80
2.0% £411,754.41
2.0% £419,989.50

Thanks (0)
By Matrix
30th Dec 2020 00:23

No, you don’t seem to have grasped percentages at all. Try a maths tutorial site since this is not such a site.

350,000 x 1.012 = £354,200

etc

Thanks (0)
By AbdulHaque
30th Dec 2020 00:29

Matrix wrote:

No, you don’t seem to have grasped percentages at all. Try a maths tutorial site since this is not such a site.

350,000 x 1.012 = £354,200

etc

Worked it out before I saw your response :) thanks for all your help.

Thanks (0)
By AbdulHaque
30th Dec 2020 00:31

Now that I have the calculations correct, is this how the additional allowance will be increased by each year going forward?

Thanks (0)
By Matrix
30th Dec 2020 00:34

You edited them after I posted but they are still wrong.

Thanks (0)
By AbdulHaque
30th Dec 2020 00:40

Yes but my statement still stands true. And this time you're incorrect as they are correct.

Thanks (0)
By AbdulHaque
30th Dec 2020 00:46

Don't forget the percentages are in the context of the CPI rates percentages I cited from that website. For e.g. a 2% increase from £411,754.41 is £419,989.50 (411,754.41 * 1.02).

Thanks (0)
By Paul Crowley
30th Dec 2020 09:38

Next matter is to consider how rounding operates.

Website

The predictions stop at 2025.

As such just using a constant unchanging rate for half of the time span would be knowingly misleading.

How often would the rates be updated?

Thanks (0)
By AbdulHaque
30th Dec 2020 10:33

They're all static rates in my spreadsheet. Firstly, I need to find out the best source for CPI forecasts, then I can think about how to make those rates dynamic.

Thanks (0)
By lionofludesch
30th Dec 2020 10:51

.

Thanks (0)
By Montrose
30th Dec 2020 19:17

Leaving mathematics aside, what about indexing the exempt amounts[£3000pa etc] up to date? Most of them date back, unchanged, to 1965

Thanks (0)
By Montrose
30th Dec 2020 19:17

Leaving mathematics aside, what about indexing the exempt amounts[£3000pa etc] up to date? Most of them date back, unchanged, to 1965

Thanks (0)
By Montrose
30th Dec 2020 19:17

Leaving mathematics aside, what about indexing the exempt amounts[£3000pa etc] up to date? Most of them date back, unchanged, to 1965

Thanks (0)