Inheritance tax threshold could rise to £1m
David Cameron has suggested a Conservative government would increase the inheritance tax threshold from £325,000 to nearer £1 million.
Replying to a pensioner who criticised his party for failing to put up the threshold to £1 million at a question and answer session near Brighton, the Prime Minister said: "We put in our manifesto that we wanted to take it to £1 million but we did not win an outright majority [and] the pledge did not make it into the Coalition agreement.
"Would I like to go further in future? Yes I would. I believe in people being able to pass things down through the generations and onto our children, it builds a stronger society.
"Inheritance tax should only really be paid by the rich, it shouldn't be paid by those people who have worked hard and saved and brought a family house.
"The ambition is still there, I would like to go further. It's something we'll have to address in our election manifesto."
Over the next five years, the Office For Budget Responsibility said the proportion of estates getting lumbered with inheritance tax at 40% over the nil rate band of £325,000 would double from one in 20 in the current tax year to nearly one in 10 by 2018/19.
Office for Budget Responsibility
Formed in May 2010, the OBR makes an independent assessment of the public finances and the economy, the public sector balance sheet and the long-term sustainability of the public finances. The OBR has four man priorities: to produce two forecasts a year for the economy and public finances, to judge the progress the government has made towards meetings its fiscal targets, to assess the long-term sustainability of the public finances and to scrutinise the Treasury’s costing of Budget measures.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.