The Inheritance Tax threshold is to be frozen until at least 2014.  The Chancellor announced in the Budget that the current limit of £325,000 would remain in place until the 2014/2015 tax year.

Inheritance Tax – sometimes referred to as the Death Tax– is payable on death if a person has more than the current threshold of £325,000 (called “the nil-rate band”).  In these circumstances, tax is charged at 40% on any assets over the nil rate band.  There are exceptions to this, for example, anything left to a spouse or a charity is free from tax.  Married couples and civil partners can double their nil rate band to £650,000. 

The decision to freeze Inheritance Tax may lead to many more estates becoming taxable especially if house prices increase over the next few years.  The tax is particularly unpopular because it is seen to punish people who have made an effort to save their money with the intention of passing it on to their children or other beneficiaries.

Traditionally, the government has increased the tax threshold each year and had intended, before the downturn in the economic climate, to increase the nil rate band to £350,000 in April 2010. The treatment of the tax differs markedly between the parties with the Conservatives pledging to increase the nil rate band to £1million per person.

Lord Jenkins once said that “Inheritance Tax is a voluntary tax paid by those who distrust their heirs more than they dislike the Inland Revenue”.  It is true that careful planning can succeed in avoiding an unnecessary charge to tax.  Anyone whose dislike of the Revenue eclipses their distrust of their heirs should contact our Wills, Trusts and Probate department for advice on this.