The Inheritance Rollercoaster

The inheritance tax rules were changed in April. They've just changed again. Here's how it might affect you.

As far as I'm concerned, it doesn't matter who's running the country, we'll always complain about how badly these untrained, unqualified people are doing. Take the reaction of some Daily Mail readers to the recent U-turn on inheritance tax (IHT):

"Gordon Brown is an interfering busy-body. He should resign when Blair goes which I hope is tomorrow."

"Well, done to all the campaigners - now if you could just make the Labour party disappear."

"As with everything this government touches, [the new IHT rules are] basically flawed."

"It's destroying to the morale and soul!"

"This New Labour government are Communists in disguise."

"Absolutely diabolical."

Perhaps you agree with them. I don't mind either way. I'm just concerned with how these amendments will affect you.

In order to prevent tax avoidance by wealthy families, Gordon Brown announced in April's Finance Bill changes to the way trusts (which are used for tax planning) are seen for inheritance tax purposes. The Treasury estimated that just a few thousand people would be affected, but tax experts disagreed, saying that up to 10 million people would have to review their wills, at a potential cost going into billions of pounds. (There are more details in this article.)

Millions of us, whether we realise it or not, have trusts written into our wills in order to shield our spouses and children from IHT. The Finance Bill took away this protection, but, after reviewing the evidence, the Treasury has softened the changes.

Now the Treasury has decided that we get to keep the tax exemption for transfers from us, through trusts such as the interest-in-possession trust, to our spouses or civil partners. As for our children, originally assets had to be handed to them before they reached 25 in order for them to be protected from inheritance tax. Gordon Brown wanted to reduce this to 18, but he's now announced that there will just be a charge of 4.2% if a child inherits between 18 and 25.

Exemptions aside, what hasn't changed since April is that existing trusts still face a 20% charge on anything over £285,000, a charge of up to 6% every 10 years and a further 6% when the assets are taken out.

So if I was going to complain about British governments (any government, not just this one), it'd be about how complex and convoluted they make everything. For peace of mind, you might still want to review your will and estate planning.

> See our excellent wills guide.

> Increase your children's inheritance: compare savings accounts and switch to earn more interest.