Chancellor gets sums wrong on IHT projections, says Way Group

A prediction by the Chancellor that around six per cent of UK estates are likely to be caught in the inheritance tax (IHT) trap by 2010 is deliberately misleading, according to fund manager The WAY Group.

The IHT planning specialist says that each family normally consists of two estates – one for each partner – with only the second to die likely to incur Inheritance Tax.

So converting the Chancellor's estimate from single ‘estate’ to 'family' suggests that a staggering twelve per cent of families will be stung with the IHT bill within three years.

“Those dying over the next three years will tend to be of the post-WW1 generation and not the rather more wealthy entrepreneurs and property-owners of the 1970s and 1980s who were born after the Second World War,” says Paul Wilcox, chairman of The WAY Group.

Spiralling property prices can only exacerbate the trend towards far higher IHT across the board with an increasing number of families being hit.

And there is going to be a real explosion in the amount of IHT collected by the Treasury over the next two decades, predicts The WAY Group.

“Property prices are likely to be one of the key drivers of families being exposed to IHT. Halifax recently estimated that nearly a third (29%) of all detached properties in England and Wales are valued at more than the 2007/08 threshold of £300,000.

“It is all well and good for the Chancellor to announce in the Budget that the threshold will rise in stages each year to £350,000 by 2010, but if house prices continue to rise at their current rate, this increase will mean that in real terms the burden will be further increased, making sensible and early tax planning even more important,” says Wilcox.

“Given the fact that so many taxpayers are in danger of being hit by IHT, it is increasingly important to make gifts within the Nil Rate Band (NRB) every seven years in order to double or treble available exemptions,” adds Wilcox.

The WAY Group currently has nine different IHT mitigation plans based on a range of investment strategies.

“None of our schemes has been affected by the Budget, but it is disappointing that the NRB is only scheduled to increase marginally over the coming three years,” says Wilcox.