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BROKEN PROMISES
Whatever the parties say about
inheritance tax prior to forming a
Government, it has to be taken with
a pinch of salt as they do not have a
strong track record of keeping their
word. Investors who held back from
making their own estate planning
arrangements while waiting for the
Government to make good on their
promises will have lost valuable time.
SUMMARY
A small increase in the threshold
would not have a large impact on the
need for IHT solutions that utilise
BPR, but a large increase would
dramatically reduce demand as the
number of households caught by the
tax falls.
This could prompt those investors
who have smaller estates just over
the threshold and who have been
using BPR to complete their estate
planning to exit their investments.
It can be argued that this would be
somewhat unnecessary, as if the
product is being well managed and
was appropriate for the investors
as an investment in its own right, it
should remain a sensible investment
for them without the additional tax
saving advantage.
For those with substantial estates,
assuming that the investor has not
let the tax tail wag the investment
dog it may well be that increases in
the nil rate band just serve to make
their IHT planning fit better - in that
the amount invested into BPR will
cover more of their IHT liability.
LABOUR PARTY
Like the Lib Dems, the Labour party
have not made a specific commitment
on IHT, although they have been very
clear that they want to clamp down
on aggressive tax avoidance.
2015 is an election year, and as we
noted earlier, inheritance tax is an
emotive topic that gets the attention
of voters. It’s fair to say that IHT, and
specifically the level of the nil rate
band, is one of those issues that gets
inordinate attention in the run up to an
election because the older generation
are much more likely to vote (75% of
those aged 65+ turned out in 2010
compared to 52% of 18-24 year olds).
At the time of writing, the
Conservatives have promised to
raise the threshold to £500,000 by
introducing a new zero-rate band
of £175,000 on a principal property,
creating an effective £1m threshold
for property owning couples. There
have been no new announcements
by the other main parties.
1991
- Prime Minister
John Major proposed
to abolish IHT at a
Conservative Party
Conference
1995
-
John Major
was challenged on his
promise by Tony Blair
but replied “when it
is appropriate and we
can afford to do so”
2006
-
Labour MP Stephen
Byers wrote in the Sunday
Telegraph that IHT should be
abolished
2007
- The Conservative Party
announced their intention to increase
the nil rate band to £1m (from £300,000)
2010
- during the General election the
conservative party retained their £1m
threshold promise
2012
- coalition announce that
the nil rate band will increase
to £329,000 in the Chancellor’s
autumn statement
2013
- the coalition
government announce that the
nil rate band will be frozen at
£325,000 until 2018
LIBERAL DEMOCRATS
The Lib Dems originally blocked the
conservatives from increasing the IHT
threshold in 2010 in order to help pull the
UK out of a recession. To date, they have not
made any announcement on their policy
on IHT. With another coalition government
a realistic prospect, it’s prudent to look at
the views of the minor parties as well.
UK INDEPENDENCE PARTY
UKIP state that they plan to completely
abolish inheritance tax, saying that “The
super-rich avoid it, while modest property
owners get caught by it.” UKIP obviously
feels the wealthy have found ways around
IHT while many others are caught by a
tax that was not intended for them.
THE GREEN PARTY
The Green Party propose to reform
inheritance tax by basing the tax on the
recipient, rather than on the deceased. The
idea is to encourage people planning for
inheritance to distribute their wealth across
a number of recipients. They also propose
a banded tax rate, with those recipients
in the lower income tax band exempt.
THE CONSERVATIVES
In their 2010 manifesto, they planned to
increase the IHT threshold to £1 million, but
the coalition government didn’t implement
this policy. David Cameron has indicated that
he would still like to increase the threshold to
£1 million.
IHT ANDTHE POLITICALOUTLOOK
