Families are facing continued tough financial decisions regarding assets as the government's inheritance tax (IHT) threshold remains frozen at £325,000.
It is expected that this figure, above which individuals must pay tax at a rate of 40%, will remain set until at least May 2015. Initial plans made by the the Conservatives in 2008 proposed to increase the IHT threshold to £1m but were scrapped under the new coalition government.
The tax freeze does not mirror the country's rise in inflation which has increased by 3% since the current IHT threshold was set in 2009. This will not work in favour for English residents living in areas where house prices have increased substantially over the last decade. Many families now hoping to pass on assets such as property and land may be unexpectedly hit by large IHT bills.
It can be hard to comprehend the amount unless working out these calculations. For instance, someone passing on assets worth £326,000, just £1,000 over the current threshold, will be liable to pay a massive £130,400 in inheritance tax.
One way families have worked against this tough threshold is by setting up various trust funds which guarantee certain tax breaks for families passing down assets. However, even this process has caused concern as it came under fire during the beginning half of this year.
The Office of Tax Simplification accused George Osborne, Chancellor of the Exchequer, for 'unfair' inheritance tax laws, calling for them to be scrapped.
If this is the case many families may now find their hard earned assets going straight into the taxman's pocket.
At present, families are able to bypass certain IHT laws through trust funds or careful personal gifting. These include an allowance of up to £3000 per year which can be given as a gift tax free or transfers made to others as long as the donor lives for at least seven years.
HM Revenue & Customs regularly reviews and updates its legislation regarding Trusts, Settlements and Estates Manual. It is important to keep up to date with any changes and this may be best done with the help of an independent financial adviser. Doing so may avoid hefty inheritance tax charges and problems for your trustees and beneficiaries in the future.
It may be increasingly difficult to avoid the payment of inheritance tax, but careful financial management may locate certain trust funds still available which can reduce the taxable amount.