IHT demise exaggerated

A couple of years ago, inheritance tax (IHT) grabbed the headlines, with one national newspaper running a high-profile campaign for its abolition. But, once Alistair Darling had announced in the 2007 Pre-Budget Report that the nil-rate band (currently £325,000) would be transferable between married couples and civil partners, IHT began to fade from view.

You might think that IHT is no longer an issue, except for multi-millionaires, but you would be wrong:

• If you are married or in a civil partnership and your total joint estate (including your home) is worth more than £650,000, then your beneficiaries could still see the Exchequer take a slice of their inheritance. For instance, on a joint estate of £1 million, the IHT bill is potentially £140,000.
• If you are unmarried, then IHT can be a more serious problem. On first death, spouses and civil partners can generally make gifts to each other free of IHT and transfer any unused nil-rate band to the survivor, but neither opportunity applies to unmarried couples. As a single person, IHT becomes relevant if your estate is worth more than £325,000.

Although IHT rules have been strengthened over the years, there are still a variety of schemes that may help limit the impact of the tax on your beneficiaries. A few of these arrangements have been in existence for many years and their effectiveness has been accepted by HM Revenue & Customs. However, IHT schemes can only go so far. If you are concerned about IHT, there is no real substitute for a thorough review of your financial planning with a close focus on its overall IHT effectiveness. Sometimes relatively minor changes can make a significance difference to the overall IHT liability.

Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The Financial Services Authority does not regulate taxation, will writing and some forms of estate planning.