Government statistics show a steady upward creep in the number of estates caught by inheritance tax, from 19,000 in 1998 to 29,500 in 2003 — a 55 per cent rise.
In 2003 — 4, the first £255,000 of everything left is tax-free; everything else is taxed at 40 per cent. Five years ago, the average UK house price was just over £72,000, which was around a third of the estate value at which inheritance tax kicked in. In 2003, the average house price has risen to £127,000 — almost half the inheritance tax threshold.
And regional variations are enormous. Those who live in London or South-east England are likely to use up most or all of the tax free slice on the value of their home, regardless of any other possessions they may want to pass on.
Fortunately, there are numerous ways to avoid inheritance tax. For example, an individual could make lifetime gifts, or a couple could equalise estates or change the way they jointly own possessions. The Guide shows the ins and outs of these and other techniques, and how to minimise other taxes (capital gains tax and income tax) that could affect inheritance planning.
Jonquil Lowe, the author of The Which? Guide to Giving and Inheriting, said:
'Following several years of rising house prices, inheritance tax can bite deeply into even relatively modest estates. Yet, with a bit of forward planning, in many cases a tax bill can be reduced or avoided altogether.’
