Despite the recent Conservative Party conference and the debate surrounding personal taxes, there has still been no mention of the Tories’ plans to deal with inheritance tax issues.
The Conservatives have been asked by media commentators and members of other parties to define their current position, since they have yet to make any real progress regarding the stated ambition in 2007 to increase the thresholds to £1m, so that fewer people would end up with steep 40pc inheritance tax bills.
The party’s main focus when it comes to tax policy has been the reform to pensions and the reduction of income tax. Inheritance tax thresholds are to remain the same until 2018, a move that was announced by the Coalition back in 2013 to help elderly people cope with healthcare costs. Finally, on October 14 David Cameron expressed his desire to take the burden off all but the mega-rich by supporting a raise in the limits.
At the moment you can inherit £325,00 without paying inheritance tax (the “nil-rate band”) if you are single or divorced; if you are married you can get as much £650,000. Things are slightly different for widowers, who can inherit up to £650,000 in the nil-rate band depending on how much of the allowance has been used before their partner’s death.
Any assets you inherit above this threshold are taxed at 40 per cent. That means if, say, all you inherited was a property worth £500,000, only £175,000 would be subject to inheritance tax. That’s a huge £70,000.
Previous chancellors had promised to increase the inheritance tax thresholds to £350,000 (you’d save £10,000 on the aforementioned house) but since the financial crisis of 2008 the limits have stayed the same. UKIP has actually promised to abolish inheritance tax altogether, so it seems there are some political motivations for changing the current situation, but the main parties are all staying pretty quiet.
The heart of the problem is that house prices in particular are on the rise, meaning that people inheriting estates in the coming years are likely to have more of their assets taxed at the higher 40pc rate if the threshold isn’t increased. The Office of Budget Responsibility has predicted that the number of people, or estates if you like, affected will be double its current level by 2018/19. in 2013/14, over 26,000 deaths resulted in inheritance tax charges.
If house prices continue to rise as they are doing, inheritance tax will be an issue that’s no longer confined to the very rich. More middle-class families will be affected – the average house price in London is £514,000, only £136,000 below the limit for married couples.
If you think you need advice on inheritance, search for specialist tax accountants in your area. This is the first step in finding out whether you are affected and seeing how you can plan to mitigate any effects by planning for Inheritance Tax.