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Conservative Inheritance Tax Policy
With a general election possible at any time, and certainly due within less than a year, one area where a change of government could make a difference is in the field of inheritance tax (IHT).
Inheritance tax has been around in one form or another since 1796, and is calculated on the value, at death, of an individual’s estate, with tax at 40 per cent currently payable on the proportion of any estate which falls above the tax threshold (currently £325,000, rising to £350,000 next year). The rapid rise in house prices in the early part of this century has meant more people being caught by the tax, simply because the value of their home has risen.
David Cameron’s announcement in 2007 that his party intended to raise the tax threshold to £1million proved hugely popular at the time, and was widely thought to have put Gordon Brown off calling an early election. However since then shadow business secretary Ken Clarke has called such a change an ‘aspiration’ rather than a policy that would be implemented straight away. So inheritance tax planning still makes sense now, regardless of whether any changes are expected in the long run.
One of the most widely-used methods to avoid IHT is outright gifts to an individual – known as ‘potentially exempt transfers’ since they become exempt if the donor stays alive for another seven years (with a reduced rate of tax payable on a sliding scale if they die between three and seven years after the gift). Smaller gifts of up to £250 per person per year (up to a maximum of £3,000 per year) and some wedding gifts are completely exempt, as are certain types of trust, business assets and charitable gifts.
Since the pre-budget report in October 2007, married couples and those in civil partnerships have been allowed to transfer any unused Inheritance Tax allowance on the death of one partner to the second partner. For example, if the first partner to die left assets worth £100,000 to other relatives and friends, and the rest of their estate went to the surviving partner, that partner would be able to leave up to £550,000 to others when they died, before paying any tax. If everything is left to the surviving partner, he or she will be able to leave up to £650,000.
Here at Watson Buckle, we are used to helping clients plan for IHT – for more information please contact us.
John Kinsella
Watson Buckle
www.watsonbuckle.co.uk