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March 2007

Inheritance Tax: ask the expert

by Steve Theaker, Tax Specialist at Peacheys

As house prices continue to soar, one in three Britons is now affected by inheritance tax (IHT).  Steve Theaker takes a look at this taxing issue and ways to ease the burden.

“Originally designed as a tax for the wealthy, IHT used to affect only those with properties of the highest value.  However, today’s situation is very different with more than eight million people falling into the IHT trap.  The very nature of IHT has changed as it is no longer taxes the people it was designed to hit.

“In 1997 the IHT threshold was fixed at £200,000.  Now at £285,000 it has increased by 42.5 per cent, but in the same period, house prices have rocketed by an average 140 per cent.  If the two had risen side-by-side, the threshold would now be around £400,000, meaning only the super-rich would be liable. 

“Inheritance tax is the tax charged on what you leave behind when you die.  It is levied at 40 per cent of the value of your assets you leave behind apart from the first £285,000 which remains tax-free.  This nil-rate band will rise to £300,000 from next April and to £325,000 by 2009. 

“If your house is currently valued above the nil-rate band threshold, there are ways to help ease the IHT burden.  If you do your homework and adopt careful planning, you may be able to save thousands.” 

Steve’s tips for handling IHT:

• Make a will to ensure your assets go where you want them
• Married couples and civil partners do not pay IHT on assets transferred to their partner
• Make sure you are maximizing any available reliefs such as those for businesses and agricultural property
• Seek advice from a professional who can you expert advice on IHT, from making a will to transferring your assets and funds