Often known as Death Duty, what was Capital Transfer Tax and before that Estate Duty is now called Inheritance Tax.

Most people know that Inheritance Tax might be payable when a person dies but fewer are familiar with the rate of tax which is applied or the size of the estate when the tax becomes payable. While the broad answers to these questions are set out below, it is the potential change in the tax which might be of most interest.

Historically, this tax has been considered only to be a tax on the rich and not intended to catch the ordinary working man or woman; not intended to catch the family home. However, there are occasions when other financial circumstances may lead to more estates being liable to the tax. A property boom leading to increased house prices means that more and more families find that the death of a loved one triggers a payment of Inheritance Tax. With the recent media coverage of house price increases in certain parts of the country it is widely considered that HM Revenue & Customs, the tax man, will receive a windfall from tax payable on estates that only a year or two ago would have fallen below the threshold.

The current rate of tax is 40% and this is charged on estates which are valued at over £325,000. As with most taxes in England and Wales there are a range of reliefs that can be claimed and exemptions which can be applied. The tax is not applied to the first £325,000 of the estate, known as the Nil Rate Band, but to any sums in excess of the threshold.

Although officially the Nil Rate Band is frozen until at least 2017/18 what may be on the cards is a promise from the Conservative party that it will increase the threshold from £325,000 if it succeeds in the general election in May. The failure by the Conservatives to gain a majority in Parliament in the 2010 election meant that it had to renege on the previous Manifesto promise to increase the threshold to £1,000,000. That may prove a step too far given the revenues which Inheritance Tax provides but we might see an indication that there would be a rise to £500,000. That would be a significant step to return the tax to a position where it was only a tax on the rich.

Beecham Peacock can provide expert advice on estate planning, drafting wills and other related legal matters. If you need advice or assistance contact us today.

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