Darling Labours IHT threshold rise

Experts are dismissing the Chancellor’s Pre-Budget Report changes to the Inheritance Tax (IHT) threshold as a ‘smoke and mirrors’ stunt to win back public support for the under-fire Labour Party. In the Pre-Budget Report, Alistair Darling announced that from the 9th October 2007 the IHT nil-band rate threshold would increase from £300,000 to £600,000 for married couples. It will then rise to £700,000 by 2010. However, this new rate is no different to the current minimum amount (the threshold) that is subject to so-called ‘death tax’. Howard Burns, a wills and probate lawyer at national law firm Lewis Hymanson Small, explains: “In his last Budget report, Gordon Brown increased the threshold from £275,000 to £300,000 per person. This means that prior to this year’s Pre-Budget Report couples with properly prepared wills could already leave up to £600,000 tax free to heirs. “Brown also pledged to increase the IHT threshold to £350,000 per person by 2010. Again, this amount is no different to the £700,000 rate that the Chancellor is promising by 2010. Essentially, the Chancellor’s nil-band rate increase is a con and will have no added financial benefit for married couples.” Announcements were also made in the Pre-Budget Report that spouses and civil partners can now transfer their nil-band rate allowances. This means that any part of the nil-band rate not used when the first spouse or civil partner dies can be passed to the surviving partner. Burns continues: “It is more positive to see that allowances have been made for couples to fully utilise their total nil-band rate. People should ensure that they keep a record of the value of their estate and check it regularly to see how it affects their IHT allowances.” HM Revenue and Customs is planning to offer more detailed guidance on IHT and how to transfer nil-band rates via its website (www.hmrc.gov.uk). To make a transfer, the surviving partner will need to complete a HMRC claims form. Burns concludes: “The new transfer rules will make provision for existing wills containing discretionary trusts, but it is strongly recommended that these wills are reviewed by a specialist. “Mitigating IHT is a complex process. It can be achieved by making IHT non-exempt gifts, but this varies widely according to the value of a gift and the timescales in which it is made. A more effective way is for people to reassess their wills and distribution of estate. “A tailored will can help protect estates against unnecessary levels of IHT.” Useful information: What is Inheritance Tax? Inheritance Tax is the tax that is paid on your estate. Broadly speaking this is everything you own at the time of your death, less what you owe. It's also sometimes payable on assets you may have given away during your lifetime. Assets include things like property, possessions, money and investments. Inheritance Tax exemptions:There are also a number of exemptions which allow you to pass on amounts (during your lifetime or in your will) without any IHT being due, for example:

• if your estate passes to your husband, wife or civil partner and you are both domiciled in the UK there is no IHT to pay even if it is above the nil band rate
• most gifts made more than seven years before your death are exempt
• certain other gifts, such as wedding gifts and gifts in anticipation of a civil partnership up to £5,000 (depending on the relationship between the giver and the recipient), gifts to charity, and £3,000 given away each year are also exempt