With just hours to go until the General Election, the voting public will be weighing up a whole range of issues before deciding which party to vote for. One particular issue that is likely to play its part is inheritance tax.
Inheritance tax, or death duty as it is commonly known, applies (broadly speaking) when a person dies leaving more than £325,000. Anything above this is subject to inheritance tax at a sizeable 40%. It means a couple that are married or in a civil partnership can pass on a maximum of £650,000 free of inheritance tax between them.
The tax is unpopular as it hits families at a time of understandable pain and there is a sense of injustice of paying tax on savings and money that has already suffered significant tax in the deceased’s lifetime.
The current threshold of £325,000 was introduced in April 2009. Since then, the country has on the whole recovered from the financial crisis which started in 2007 and certainly property prices have increased since the current threshold came in. This has resulted in many, many more estates being subjected to inheritance tax bills which have resulted in animosity towards the death duty which is one of the most onerous of any country in the world.
If the Conservatives emerge victorious in a few days time then they have pledged to add a new £175,000 tax free allowance to a property owned by the deceased. If the property was owned by a couple, then the amount is doubled to £350,000 so the net effect is to raise the inheritance tax threshold to £1,000,000 per couple who are married or in a civil partnership. This could prove popular with voters who are worried about having to pay inheritance tax on loved ones estates.
What of Labour? They have remained quiet on proposals for reforming the inheritance tax regime. In a recent press release by Chris Leslie, Labour’s Shadow Chief Secretary to the Treasury, he described the Tory pledge as a “panicky promise” which would not apply to 90% of estates and therefore was not worthwhile to the electorate as a whole.
An increase in the inheritance tax threshold is likely to be welcomed by all but potentially only felt by a minority. The Tory promise could save families a lot of inheritance tax compared to the current regime but do not hold your breath – the Tories promised to raise the inheritance tax threshold to £1,000,000 five years ago and failed to do so and further, the lost revenue from inheritance tax is likely to be felt through a tax rise elsewhere.
In any event, perhaps post election is the time to review the finances and to see how inheritance tax changes (if any) may affect you.
Wills & Probate Team
0113 227 9247