9th April 2015
Inheritance tax under the spotlight in countdown to the general election
The matter of inheritance is top of the agenda for Chancellor George Osborne in the countdown to the general election.
In the Spring budget, the hoped-for announcement of an increase in the inheritance tax threshold nil rate band from its long standing level of £325,000 was not forthcoming. Instead, the Chancellor announced a review into the avoidance of inheritance tax through the use of "deeds of variation".
Beneficiaries of a dead person's estate can choose to direct part or all of their inheritance to another person through a deed of variation. They are often used within families to 'miss a generation' and so avoid inheritance tax.
An example would be where an elderly parent dies, leaving everything to a comfortably off son or daughter. Knowing they will not need the money, the son or daughter decides to re-route all or part of the legacy directly to the next generation, through a deed of variation, so reducing the value of their estate and the amount of inheritance tax that will be due when they die.
The announcement of this review does mean that anyone involved in administering an estate, where there is any intention to do a deed of variation, should probably move on that decision sooner rather than later. Under current legislation such a deed can be made at any time up to two years after death, but if the door were to be closed, it could result in fairly substantial reworking of sums for the next generation.
News leaked in advance of the Budget suggested that the Chancellor was likely to announce plans to raise the threshold at which people pay inheritance tax on the family home up to £1 million, but this was not included in the Budget announcement, leaving an expectation that this will, instead, be used as a vote catcher and be included in the Conservative election manifesto.
The prospect of an increase in the inheritance tax nil rate band threshold has been deferred, despite being widely tipped. For now, it looks likely to be a carrot to encourage voters to return the Government for a further term.
Whilst the threshold remains at £325,000, there is a need to review circumstances with advisors to see if there is anything that can be done through lifetime gifts or other means.
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