The Conservatives have promised to raise the inheritance tax threshold to £1 million for a married couple, but this headline may not be quite as generous as it seems. In fact, they are not lifting the general threshold at all, even though it has been stuck at £325,000 since 2009 while property prices have risen considerably; the result is that more people than ever, especially in the south east, are finding themselves in the death duties trap.
Their announcement this week says that couples will be given a further £350,000, bringing the total amount before tax is due to £1 million. But (and there always seems to be a “but”), that extra allowance can only be used for the home.
So that leaves a lot of unanswered questions and assumptions which rather burst the balloon. What if the only property they owned is let? Single people presumably only have a further £175,000 allowance, so owning a far-from-extravagant house would still mean an inheritance tax bill. Divorcees would no doubt be in the same position. And what about a widow who had recently sold her home to pay for care, and now has the proceeds of sale rather than the property – no doubt that is a £350,000 allowance completely gone in a puff of smoke, and an inheritance tax bill of £140,000 instead.
One further thought – the announcement kept using the expression “to enable you to pass your home to your children”. Does this mean that the allowance would only apply to those with children? Who knows!
This isn’t a shout to vote for another party. Labour are unlikely to raise the threshold by a single penny, nor the Liberal Democrats. And a coalition government would presumably keep the Conservatives from putting this promise fully into practice.
But it does mean that nobody should put off dealing with sensible estate planning, on the flimsy basis of a promise which could come to a lot less than it at first seems to offer.