The Conservatives have promised a major reform of inheritance tax (IHT) in the run-up to the general election on 7 May.
There was no movement in the 18 March Budget on the threshold for IHT, which is payable at a rate of 40 per cent on estates worth more than £325,000 – a figure that is effectively doubled for married couples and civil partners – which has applied since April 2009.
In 2013-14, around five per cent of estates were estimated to have an IHT liability but last year the independent Office of Budget Responsibility suggested that this would rise to 9.9 per cent by 2018-19, chiefly due to rising house prices.
On 12 April, the Conservatives announced that if the party formed the next government, it would take the family home out of IHT by introducing a new, transferable, family home allowance of £175,000 per person.
The party said that for married couples and civil partners, this would effectively increase the inheritance tax threshold to £1 million. The allowance would gradually be withdrawn from estates worth over £2 million with those valued at more than £2.35 million losing all the new allowance
An analysis of the proposal by the independent Institute of Fiscal Studies said the Conservatives estimated that the policy would represent a “giveaway” of about £1 billion.
It added: “With around 50,000 estates forecast to pay IHT over the next few years this gives an average (mean) gain per IHT paying estate of around £20,000. The maximum reduction in IHT on a couple’s estate is £140,000 which will go to married couples with estates worth between £1 million and £2 million.”
Tim Steele, a partner at Palmers specialising in issues including inheritance tax and estate planning, said: “Whatever the outcome of the general election in May, the inheritance tax regime is likely to undergo change in the future.
“Taking early, expert advice from IHT specialists is a wise investment in maximising the value of inheritance tax reliefs and allowances and structuring wills in the most tax-efficient way. For more information on how Palmers can help, contact our Wills, Trusts and Probate team.”