New warning over Inheritance Tax
18/04/2007
Despite the rise in the nil-rate Inheritance Tax (IHT) threshold to £300,000, almost 9.4 million homeowners will still have an estate liable for a 40% tax bill on their death, according to new research from the Scottish Widows IHT index.
Whilst almost five million homeowners are now valued at more than the £300,000 threshold, when total household wealth is taken into account – a more accurate representation of a potential IHT bill – a further four and a half million are liable for IHT. And as the average household wealth is likely to continue increasing, the number of people liable for IHT is likely to continue rising.
Anne Young, tax expert at Scottish Widows, comments: “The recent announcement from the Chancellor in the Budget seemed to be a sweetener, but raising the threshold to £350,000 by 2010 will still leave many people with a problem if house prices continue to rise at the current rate. However, all hope needn’t be lost for those that think they may have to pass on a tax bill as well as their possessions to their loved ones. There are solutions available to get people out of this tax trap.”
A flat 40% IHT threshold limit was introduced almost 20 years ago in 1988, with the nil-rate threshold starting at £110,000. However, if the threshold had risen in line with house prices since 1988, it would now be £419,754 - demonstrating that successive Governments have failed to keep IHT thresholds in line with house prices.
The most popular actions people have taken to mitigate against inheritance tax are:
Making a will (62%)
Setting up a trust (32%)
Visiting a financial adviser (28%)
Changing joint ownership of the home to tenants in common (28%)
Giving away money (23%)
Anne Young concluded: “People need to add up the value of their assets and do a rough calculation to see if they have a potential problem when they die. The best advice I can give anyone is to ensure they at least write a will, so that their relatives benefit in the way that they would want. Taking advice in plenty of time is crucial.”
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