INHERITANCE TAX PENALISES THE SINGLE AND CHILDLESS

DISCRIMINATION BUILT IN TO INHERITANCE TAX 

The vast majority of us will not pay Inheritance Tax. In 2024/25 only 6% - about one in 17 - of estates will pay it. And even after the changes made in the 2024 Budget only about one in 11 will pay it in 2029/30. Nevertheless, Inheritance Tax remains one of the most feared and hated taxes. Especially by those who feel it discriminates against them. And the rules do discriminate against the heirs of people who are childless, or single, or who do not own their own home. 

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When someone dies their estate is assessed for Inheritance Tax. If their assets exceed their threshold then the tax is normally levied at 40% of the excess. But there are four different thresholds, some worth double or treble the basic one.

Main Residence Band

The thresholds start with the basic nil-rate band (as it is formally called) of £325,000. But if you own the home you live in you can have up to an additional £175,000 making a total of £500,000. It is called the main nil-rate residence band or MRNRB. There are two main conditions to get it

• The additional amount is the value of the home with a maximum of £175,000.   
• The home must be left to direct descendants. That means children, grandchildren, or great grandchildren of the person who has died. It does not include cousins, nephews, nieces, sisters, brothers, uncles, aunts, or any other relatives. However, the definition of a direct descendant does include adopted, step, and foster children.

For those who do qualify there is a third rule which reduces the main residence band if the total estate including the home exceeds £2 million. It disappears at the rate of £1 for every £2 above £2 million so the £175,000 extra vanishes as the estate reaches £2.35 million.

These rules discriminate against the childless and of course those who do not own their own home. They also discriminate against wealthier families! 

Marriage

One special threshold is limitless. Everything you leave to a spouse (including a civil partner) is completely free of Inheritance Tax whatever its value. If you have a spouse, it is usually best to leave everything to them. If you have a partner who is not a spouse then marrying or civil partnering them is the best inheritance tax planning you can do. If you do not they are treated like any other heir when you die, however long you have been together and however many children you have shared.

There is a second inheritance tax advantage to marrying. Not only is everything left to a spouse free of the tax when the first of the couple dies, but when the second dies their heirs get double the normal allowances. So it really is win win. 

That is why rule number one of IHT planning is - marry the one you love!

Second to die

If the person who dies is a widow (including widowers and bereaved civil partners of course) and their partner left everything to them - as recommended above - then the heirs get double the normal thresholds. 

The basic threshold of £325,000 is doubled to £650,000. So their heirs can inherit that much entirely free of inheritance tax. If they own their home their heirs also get double the main residence threshold - so the £175,000 is doubled to £350,000. Added up those two thresholds reach the magic £1 million exempt from tax, which is often talked of but in practice applies only to a minority of estates. 

These rules discriminate against the unmarried - single or divorced - and magnify the discrimination against the childless and those who do not own their own home. 

The complex web of thresholds

Inheritance Tax Thresholds
Marital status	Children	Home ownership	IHT begins over
Single or divorced	No children	Don’t own home	£325,000
	No children	Own home	£325,000
	Children	Don’t own home	£325,000
	Children	Own home	Up to £500,000*
Widowed (spouse let them everything)	No children	Don’t own home	£650,000
	No children	Own home	£650,000
	Children	Don’t own home	£650,000
	Children	Own home	Up to £1,000,000**
Married	leave everything to spouse or civil partner and it is all free of IHT
* Including up to £175,000 of the value of a home left to a direct descendant. ** Including up to £350,000 of the value of a home left to a direct descendant.  If the value of home exceeds £2 million, the extra allowance of £175,000 or £350,000 for a widow is tapered away by £1 for every £2 above £2 million. And disappears at £2.35m or £2.7m (widow).

The table sums up the rules and tabulates the discriminations. However, not all the details are captured in this table which, believe it or not, is simplified! 

If your estate is large or your circumstances are complex you should always seek professional legal and tax advice about how the rules apply to your affairs and what tax would be due. Find one through the Association of Lifetime Lawyers or the Society of Trust and Estate Practitioners. 

Never consider any scheme to reduce inheritance tax by putting your home or assets into a trust. It will not work and you - or more likely your heirs - will have to spend more money undoing it. Read more about the dangers in this report.

Paul Lewis

2 October 2025

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OFGEM WON'T SCRAP STANDING CHARGES

1 October 2025

STANDING CHARGES ARE HERE TO STAY 

MAKING ENERGY BILLS EVEN MORE COMPLICATED

Summary

After nearly two years of consultation and thought, the energy regulator Ofgem has decided not to scrap standing charges for electricity and gas. 

Instead it plans to make suppliers offer one tariff from January 2026 which has lower standing charges - reduced by either £150 or £200 (it is consulting on which) below the current level of £320 a year for those who have both gas and electricity. 

Customers who use less than a quarter of the average use will be excluded from the lower standing charges. 

Suppliers will be expected to recover the cost of reducing standing charges by raising the price of each unit of gas or electricity used. Ofgem will not cap those higher unit charges but they must be 'reasonable'.

Details

The 22,000 word consultation paper setting out Ofgem's intentions was published on 27 September. Technically it is another consultation paper. But clearly the regulator has come to a fairly settled view of what it intends. If the changes are to happen in January, as it plans, it must announce them on 25 November with the January price cap. The consultation lasts until 22 October.  

Lower standing charge

The standing charge reduction will be the same amount across all payment types even though standing charges vary from region to region and are higher for those who pay quarterly. 

The amount will be split between the two fuels. Ofgem tells me that will mean a reduction in electricity standing charges from the current average of £196 by between £65 (33%) and £90 (46%). And a reduction in gas standing charges from current average of £124 a year of between £85 (69%) to £100 (80%). The reduction is less for electricity than for gas because electricity standing charges contain many more additional costs for elements such as green schemes and discounts for low income customers which will remain with the electricity standing charge. I am not quite sure yet why the maximum reduction per fuel of £100 + £90 does not come to the overall cut of £200!

The electricity standing charge reduction will be the same for the 4.4 million households who are not connected to the gas grid. About half of them use electricity for their heating - the rest use oil or LPG. 

Excluding low users

Ofgem plans to exclude low users from the reduction in standing charge. It calls this a minimum consumption threshold which is intended to ensure the lower standing charges will not benefit those with second homes or perhaps have a separate supply for an outhouse or garage.

However, Ofgem admits it will also exclude from the lower tariff 446,000 consumers many of whom are on low incomes. Most quarterly payers (standard credit consumers) are pensioners and many prepayment meter (PPM) customers are on low incomes. 

It plans to set the threshold to get the lower standing charges at 666 kWh a year for electricity and 2836 kWh for gas. Those rather odd numbers are the equivalent of 90 days usage at the rates of 2700 kWh for electricity and 11,500 kWh for gas which it says are 'typical' of users who have both fuels and pay by direct debit. It uses those figures to turn its price cap into a typical 'annual bill'. 

The customers who will be excluded are those who are facing large increses in their bills this October. While Ofgem says the 'typical' dual fuel user will see their total bills rise by 2% from October, customers using a quarter of the typical amount of gas and electricity will face a rise of double that just over 4% because the biggest rises in the October cap were for standing charges - up 4.5% to have an electricity supply and a massive 14.1% more for a gas supply. They dwarf the 2.4% rise in electricity unit prices and the slight fall of -0.8% in gas unit prices, penalising small users. 

Currently the threshold will be a cliff-edge - at those levels you will get it, one unit below and you will not. So someone using the threshold amounts will get the standing charge discount but someone who boils one less kettle of water or takes one less shower in a year will lose it. In theory it will be possible to cut usage by just 26p worth of electricity and 7p worth of gas and lose the whole £150 or £200 reduction in the total standing charges. Ofgem told me it is "not currently proposing a sliding scale but may consider this further as we move towards a decision". 

Higher unit rates

Ofgem has been at pains to stress that its proposals do not cut overall prices they just shift them around. So overall customers who take the lower standing charge tariffs will pay the same because the the rates they pay per unit will be higher. 

These higher unit rates will be above the capped rates set by Ofgem and will not themselves be capped or subject to any specific restrictions. Ofgem simply says they must be 'reasonable' taking account of the cost of supplying energy to the customer and what it calls 'comparative tariffs' and 'any other relevant matter'. It says it may issue further guidance on what would be reasonable. But it is clear that the higher unit rates will vary from supplier to supplier even though the lower standing charges will not.

Ofgem did not provide an indication of how much higher the unit tariffs would need to be. However, the arithmetic is straighforward. Assuming that the typical customer who switched to the lower tariff used half the typical amount of energy then the unit tariffs would need to rise by 6.67p (25%) for electricity and 1.74p (28%) for gas for a supplier to break even on cutting the standing charge by the maximum amounts which Ofgem proposes. If the balance point was set at three quarters of typical use then the individual unit tariffs would need to be about 17% more than the capped rates.

Complexity

The addition of an extra tariff with lower standing charges but higher unit rates is clearly going to make customer choice even more difficult. Even a binary choice between a tariff with capped standing charges and capped unit rates and a tariff with the lower standing charges and higher tariffs will be impossible for individual customers to make, not least because all suppliers will be free to set the higher tariffs to match the lower standing charges. 

Ofgem could cut through this complexity by mandating suppliers to work out each month which combination would be cheaper and to charge customers that lower cost each month.

Paul Lewis

3 October 2025

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