Now that the Conservative Party are in power they have conveniently forgot their manifesto promise to increase the nil rate band exemption for Inheritance Tax (IHT) to £1,000,000. Instead they have fallen in line with the Labour freeze on the current amount of £325,000 until 2015. After 2015 this exemption will only be increased in line with the Consumer Price Index, which unlike the Retail Price Index, does not react to increases in property prices.
Inflation has already started to widen the gap between the nil rate band and the value of estates at death. As the currently depressed property market recovers, this gap will get ever wider, bringing more and more people into the IHT net to be subject to a tax of 40% on all the assets that they own in excess of their nil rate bands.
Rather than being a tax on the super rich, who have the means of avoiding this tax, IHT is a tax that impacts mainly on the moderately wealthy members of society such as the current Baby Boomers who typically are industrious, frugal, and have accumulated on paper a reasonable estate. A decent house, a nice car, and some investments, and you could be facing a considerable tax liability on your death. Leaving a legacy to you loved ones could be a daunting prospect for them – with the present state of the banks how are they going to find the money to pay the IHT bill so that they can get probate and deal with your estate?
IHT is a stealth tax at its worst. It will affect more and more people if they do not take action NOW. At DEB we are rising to the challenge that this liability poses to many of our clients. We are looking to increase awareness so that remedial action can be taken to reduce their exposure to a tax that is imposed upon the wealth that has been created out of income that has been heavily taxed already.
If you feel that that IHT could be a concern and you need some help, please do not hesitate to contact us at DEB Chartered Accountants.