Inheritance Tax

Excuse me while I rant. The Tories have got a lift in the polls at the moment. Allegedly because of their announcement of the increase on the inheritance tax threshold from £300,000 to £1,000,000.

I've listened to various people in the media, including Tory MPs saying that this is necessary as it's no longer a tax just on the rich as many houses are valued at over £300,000 and 40% is a lot of money to lose.

Well it is true that estates are getting bigger because of house price inflation. But what are the implications? Suppose your estate is worth £350,000 - how much inheritance tax will your executors have to pay before handing out the rest to your loved ones? £140,000?

Nope, it's £20,000. That's because it works like income tax: you only pay the 40% on the money above £300,000. So at £350,000 you pay 5.7% tax on the whole amount.

Even at £600,000 the tax is £120,000 or 20% which starts to sound worse but there's a second element in all of this: the £300,000 threshold is per person, not per household. So anyone with a clue gets their solicitor to draw up a trust which ensures that whichever partner dies first leaves their half of the house to the children in trust (so they can't actually get their hands on it until the other one dies). The consequence of this is that as a couple your effective inheritance tax threshold is £600,000.

Now the question I have is: how many of those people who are now about to vote Tory understand the above, and do they really expect to have an estate significantly over £300,000 if they're living alone or £600,000 if they're a couple? Even if they do is it really so far above that that the amount of tax their estate will pay is really a significant proportion of the estate?