Watson Esam | News | Inheritance Tax Freeze

Whenever the budget is announced we generally expect an increase in tax on the usual suspects of cigarettes, alcohol and petrol, but equally we presume that we will have an increase in personal allowances to reflect inflation.  However March's budget brought a few surprises for us all and whilst personal tax allowances remaining the same was a blow to most of us, there was also some disappointing news with regard to inheritance tax.

Currently inheritance tax is paid at a rate of 40% on estates worth more than £325,000 (known as the nil rate band).  The pre-budget report last year had already announced that the nil rate band would be frozen at £325,000 for 2010-2011.  However Alistair Darling surprised us all by announcing that the inheritance tax nil rate band would be frozen under a Labour government until 2014!  This means that a further 650,000 families could face an inheritance tax bill if Labour win the general election.

So, with the general election looming in May, plans for the inheritance tax regime are likely to be on the main political parties' agendas as they battle for power over the next month.

The situation now of course is that people are in the difficult position of trying to plan their estates and finances around an unknown tax burden, which may all change depending on the outcome of the 6th May election.

However, this does not mean that people should sit back and see what happens.  In fact the opposite should happen and the potential inheritance tax freeze should encourage people to consider their planning opportunities now.  It may be months or even years before any changes are actually brought in by whichever party wins the general election, so it is vitally important to ensure that your will reflects the law as it stands at the time, after all, no-one knows when they are going to die.

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