Current Inheritance Tax position

Alistair Darling’s last budget in April froze the Inheritance Tax Allowance (IHT) of £325,000 until 2015.

So should there be any inflation and/or should people’s estates increase in size, this will mean that more tax will be payable to the government.

Currently 40 per cent IHT is paid on an estate over £325,000. However, there is no tax payable when an estate is left to a spouse or civil partner and on the death of the surviving spouse or civil partner any unused IHT allowance can be claimed.  Therefore, for a married couple or registered civil partners the allowance is £650,000 before 40 per cent tax becomes payable.

For example, if we look at Mr & Mrs Smith.  Mr Smith dies and his estate consists of the following assets:

• -Interest in house £200,000
• Bank accounts and investments £50,000
• Ferrari £120,000
• Total estate passing to Mrs Smith is £370,000.

There is no tax payable because his estate is passing to his spouse.

Mrs Smith dies a few years later and her estate is valued at £645,000. There will be no IHT payable.

Prior to the election the conservatives were saying that they would raise the IHT threshold to one million pounds, but the new coalition Government has indicated that Chancellor George Osborne will be leaving it as it is in his emergency budget on June 22^.