Julian Knight: Don't leave inheritance tax to our honourable friends

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The Independent Online

Opinion polls suggest the Tories may have played a bit of a blinder by promising to up the threshold at which inheritance tax (IHT) is paid from £300,000 to £1m.

To an extent, Gordon Brown is reaping what he has sown: for much of his time as Chancellor, he raised the IHT threshold only in line with inflation while soaring house prices swelled the estates of many people in middle Britain, drawing them into the IHT net for the first time.

It is clear not just from opinion polls but letters to The Independent on Sunday that many people in this position think the tax is simply unfair. In the past, IHT was paid by wealthy Britain, not middle Britain. The people liable were so rich, they were remote to the rest of us. And they could afford lawyers and accountants to keep their tax bills down.

Now relatively ordinary people face the prospect that – after a lifetime of hard work, saving and taking on the responsibility of buying a home – the taxman will come along when they die and impose a whopping 40 per cent tax on their estate. As a result, although IHT is around a century old, it seems to many Britons to be a new and particularly unwelcome tax.

But unless Chancellor Alistair Darling pulls a rabbit from the hat in Tuesday's pre-Budget report – one possibility being discussed is making the family home exempt – the IHT landscape is unlikely to change any time soon. Don't forget: the Tories need a double-digit swing to make it into power, and many commentators reckon that the best David Cameron can hope for if an election is called next week is a hung parliament.

If you are worried that the taxman will take a chunk out of your estate when you die, the onus is on you to put plans in place. The first and most important thing is to make a will. Of course, no one wants to think about the "d" word (I can't even write it out in full) but it is nevertheless staggering that around two-thirds of British adults do not have a will.

They should do: it can be drawn up in such a way as to exploit IHT loopholes. Through a joint will, for example, married couples and same-sex civil partners can make the most of their individual IHT "nil rate" bands – the value of assets that can be bequeathed before IHT is due.

In addition, smart financial planning in later life – the gifting of cash and property and the drawing up of trusts – can push down or even eliminate an IHT bill.

The message, as with many things personal finance, is to prepare for the worst and treat any scraps politicians deign to throw you as a bonus.

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