Thousands more families will be dragged into the inheritance tax (IHT) net, following a government decision to freeze the tax-free £325,000 threshold until 2019, to fund a £75,000 cap on long-term care costs.
The move comes despite chancellor George Osborne’s Autumn Statement pledge to raise the threshold by 1 per cent to £329,000 for individuals, and £658,000 for couples, in 2015/16.
Experts calculate an estimated 5,000 more families a year will now be caught by IHT and predict that the announcement will trigger more people to seek IHT mitigation measures.
Nigel Ashfield, managing director at Time Investments, said: “With inflation and rising house prices in many parts of the country, thousands more people will end up being liable to pay IHT. What was once seen as a tax for the more wealthy in society is becoming more of a ‘mass market’ tax on people’s wealth.”
He added that had the IHT threshold been linked to inflation in 2009, rather than frozen, it would have risen to over £377,000, an increase of over £50,000.
Peter Goodman, partner at Wilkins Kennedy, the accountancy firm, said there were a number of ways families could minimise their IHT bill. These include potentially exempt transfers (PETs) and gifts out of surplus income – both of which are made while the donor is still alive.
“PETs are a good way of transferring assets, but unfortunately getting the timing right on these transfers isn’t an exact science,” he warned. “Evidence of the gift should be kept to show the date the gift was made. When making gifts, consideration should always be given to other taxes – such as capital gains or stamp duty – that may apply to part of the gift.”
As well as transferring money while still alive, there are more esoteric options available, said David Smith, certified financial planner at broker Bestinvest. These include investing in enterprise investment schemes or qualifying Aim shares – both of which are exempt from an estate after being held for two years under business property relief.
However, Smith warned against “clever” IHT mitigation strategies which attempt to find loopholes “as HMRC is taking an ever more robust approach to challenging and closing these down and the fees can be very high”.