The Government is pocketing a stealth tax on inheritance by failing to raise the threshold in line with inflation.

The threshold has not been index-linked, so in real terms it’s being eroded. In some cases the allowances are only worth a third of their original value, after taking into account inflation. Some reliefs have not been raised for 30 years.

The annual exemption of £3,000 excluded from an individual’s IHT bill on their death has been fixed since 1981. It’s now only worth 29% of it’s original value after inflation. Had the limit rose with the cost of living it would currently be over £10,000. Also the small gift allowance of £250 is now only worth 29% of its original value.

The exemption for wedding and civil partnership gifts set in 1984 has shrunk to 36%. The nil rate band was revised in 2009 from £312,000 to £325,000, however the steep rise in inflation since then has wiped out the benefit. The total IHT paid fell from 2.8Bn to £2.3Bn after that increase, but the threshold is now worth only 89% of it’s original value and the threshold should be closer to £400,000.

The consumer price index measure has been above the Bank of England’s target of 2% since December 2009, and peaked in September 2011 at 5.2% and is currently 2.7%.

This means that more and more people particularly in London and the South East are liable for it simply because of the high property prices.

We hope that this article has provided information on the inheritance tax threshold.

Further Reading: Inheritance Tax Planning | Probate Guide | Probate Forms