At present inheritance tax is paid if a person’s estate is worth more than £325,000 when they die, with a married couple having a joint allowance of £650,000.
Anything over this figure will attract tax at a rate of 40 per cent, with this rate being reduced to 36 per cent if 10 per cent is left to charity.
About eight per cent of people will pay inheritance tax this year and although this is a relatively small figure it is a very unpopular tax with the consumer regarding it as the least fair tax.
However there are measures you can take to avoid paying this tax.
For no inheritance tax to apply if you die before this time, the gift recipient will have to pay inheritance tax on it, although the amount is reduced on a sliding scale between years three and seven.
Other measures you can take that don’t attract inheritance tax at all include gifts up to £3,000 per tax year, wedding gifts to children and grand children between £2,500 and £5,000 or £1,000 to anyone else with small gifts of up to £250. Finally you can also make gifts from your everyday income as long as you are still able to maintain your normal lifestyle throughout the year
For many £650,000 and the other allowances are not enough, and although only eight per cent of people pay this tax, an increase would be popular and a vote winner at the next election. So it is not surprising the Conservatives, provided they are re-elected, would from April 17 offer a further £175,000 family home allowance per person that for homeowners would increase the allowance per couple to £1million.
For properties worth more than £2million the new allowance would be gradually reduced so that homes worth more than £2.35million would not benefit at all.
Although it is planned to pay for this benefit by reducing tax relief on pensions for high earners, I believe these measures will primarily benefit the homeowners in the south, and this is because modern properties can cost in excess of £500,000.
By contrast I believe the rest of the country will benefit very little overall.