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, payable at 40 per cent on estates worth more than £325,000. The threshold has remained unchanged since April 2009.
But 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 The allowance would gradually be withdrawn from estates worth over £2 million with those valued at more than £2.35 million losing all the new allowance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.”
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.
Meanwhile, the future of deeds of variation has been thrown into doubt after Chancellor George Osborne used the 2015 Budget to announce a review of their use in relation to inheritance tax, with a report due in the autumn.
Deeds of variation hit the headlines in February following claims over the way Labour leader Ed Miliband inherited a share of his parents’ home. He confirmed that his mother had set up a deed of variation after the death of his father more than 20 years ago and a Labour spokesman said he subsequently paid 40 per cent capital gains tax when the house was sold in the 2005-05 financial year.
Whatever changes to the IHT regime may be on the way – either as a result of a change of government after the May election or as a result of the deeds of variation review – Moore Thompson’s inheritance tax specialists can provide expert advice to legal advisors and their clients on mitigating IHT liabilities as part of wider estate planning. For more information, please contact us.