The government has abandoned its pledge to reform the Inheritance Tax system and frozen the threshold at £325,000 per person until at least 2019.
Broadly speaking, a single person will pay Inheritance Tax at a rate of 40% on any assets over the £325,000 threshold, which is doubled to £650,000 for couples. Taking into account inflation and growth in asset prices changes will mean an effective increase in the amount of Inheritance Tax which will be paid by people, whilst more people will see their estates liable to the tax.
£1 million threshold
In 2007 George Osborne promised that the Inheritance Tax threshold would be increased to £1 million, saying “in a Conservative Britain, only millionaires will pay death duties.” With the threshold now frozen at less than a third of this level, it now appears that this policy will never see the light of day.
Even the announcement in December’s Autumn Statement that the Inheritance Tax threshold would increase by 1%, to £329,000, in the 2015/16 tax year has been scrapped.
According to the Treasury the freezing of the threshold will mean a 25% increase in the number of estates which pay Inheritance Tax, from around 19,000 a year to 24,000.
Long term care changes
The government has said that the savings made from freezing the threshold will help to pay for the changes to long term care, which will see a cap of £75,000 on total fees a person can pay for care during their life and an increase in the means testing cap from £23,250 to £123,000.
Responding to the proposed changes Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance, said: “Inheritance tax is a deeply unfair double tax which is levied on assets that will have been paid for by income the taxman has already dipped his fingers into. In opposition the Chancellor was critical of his predecessor’s love of stealth taxes, it seems like not much has changed in the Treasury since.”
Experts are divided on how many people will be affected by the changes with some saying that up to one million people would have been helped by the Inheritance Tax threshold proposed in 2007, whilst only 100,000 will be better off as a result of the changes announced yesterday to long term care costs.
