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Threshold rise still sees 40% in tax trap

Almost four in 10 homeowners will still be caught in the inheritance tax net despite the increase in the nil-rate band, warns Scottish Widows.

The firm says 4.8 million people’s properties alone are worth more than the £300,000 threshold with 9.4 million people with total estates which exceed the limit.

Despite the threshold increase to £300,000, 37 per cent homeowners will still have estates liable for IHT, according to Widows’ latest research.

Last month’s Budget raised the threshold to £350,000 by 2010, appearing to be a sweetener but tax expert Anne Young warns if house prices continue to rise at the same rate many people will still be affected.

She says: “All hope need not be lost for those that think they may have to pass on a tax bill as well as their possessions to their loved ones. There are solutions available to get people out of this tax trap.”

Young says the most popular actions people have taken to mitigate against IHT are making a will, setting up a trust and visiting a financial adviser or changing joint ownership of a home to tenants in common.

The nil-rate band increase from £285,000 to £300,000 sees the number of people liable for IHT dropping from 41 to 37 per cent but average household wealth rose by 3 per cent in the past four months alone.

Young says: “The number of people affected by IHT when the threshold was at £275,000 was less than the number that will be affected when the threshold rises to £300,000. Raising the threshold should help more, not less people.”

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