In July, the government announced a £1m allowance for couples who want to pass on property wealth, plus an extra allowance for family homes in addition to the existing tax-free band from 2017, taking the total to £1m by 2020.
However, Mike Coady, managing director of deVere United Kingdom, said many people are likely to miss out on benefitting from the new allowance.
“Over the last couple of years, reducing the burden of IHT has become an increasingly important priority for a growing number of families,” he said.
“This trend has come about for a number of reasons, but primarily because more and more people have been dragged into the IHT net due to rising house prices, a recovery of household savings, and due to the threshold at which IHT is charged being frozen.
“However, despite being keen to cut IHT liabilities, many are likely to miss out on the government’s new allowance if they don’t review their wills – this is because, as is so often the case, the devil is in the detail.”
Discretionary trusts, the most popular trusts to minimise IHT, are exempt from the new family home allowance because the property does not pass directly to the beneficiary or beneficiaries. For the family home allowance to be used, the property must be inherited directly by descendants, such as children, stepchildren or grandchildren.
“As such, those with discretionary trusts set up by families in order to leave property to children tax efficiently could potentially be missing out on a £350,000 per couple allowance from 2020. Therefore, I would urge anyone who could be affected to review and then possibly revise their wills,” said Coady.
He added: “There are still a raft of bona fide trusts and other financial solutions, such as holding properties as ‘tenants in common’ with your spouse, investments that qualify for relief and gift allowances, that can help mitigate IHT.
“It is hardly surprising people are typically eager to reduce IHT, often described as ‘the most hated of all forms of taxation’. This is because leaving a legacy to loved ones is a very human instinct and people feel especially aggrieved by this form of IHT because it is, in effect, a form of double taxation as tax is being paid on assets which have already been paid for and previously taxed.”