Brown failed to deliver good news on inheritance tax

Brown failed to deliver good news on inheritance tax

More than 15 million people have reason to be disappointed by Chancellor Gordon Brown's silence on inheritance tax in his budget. The main announcement - a £300,000 IHT threshold for 2007/08, rising to £350,000 for 2010 - had already been made last year, and does little to help homeowners who want to pass their assets on intact to their children.

The Chancellor clearly sees IHT as a good revenue raiser, and he does not respond to statistics such as those from the Halifax that calculate that 4.3 million homes will be above the threshold by 2020. Since the majority of those 4.3 million homes will be owned jointly by parents who will, in most cases, be leaving the property to two or more children, it seems that well over 15 million homeowners and their heirs could be affected.

But there still ways of protecting your legacy, say the tax experts:

· Make a will if your assets are likely to be above the threshold. The destination of your bequests can dictate whether the 40 per cent tax is payable or not. Legacies to charity are tax-free, for instance.

· Consider getting married or entering a civil registered partnership. There is no IHT on assets left to spouses or civil registered partners. Cohabitees, by contrast, can find themselves in very difficult financial situations if one dies and leaves property to the other.

· Set up a 'nil rate band'.....continued below

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trust with your spouse or civil registered partner as part of your will. Under such an arrangement you can save your family up to £120,000 in future IHT. Under such an arrangement, assets up to the value of the nil rate band are passed into a trust when the first spouse or civil registered partner dies. A share of the family home, investments, buy-to-let and other assets can be included. When the first spouse dies, the survivor can still exercise discretion about what happens to the assets as he or she can become one of the trustees. Professional advice does need to be taken, however, as a badly-drawn-up trust might be ineffective. In fact, as well as making one of these trusts to be triggered on death, it is also possible to make several lifetime trusts - one every seven years - that work in a similar way, according to Stuart Skeffington of solicitor Withers.

· Invest in a business property relief (BPR) scheme. Set up originally to help family businesses pass on their assets free of IHT, BPRs now offer 100 per cent protection against IHT if the investment is made at least two years before the person dies. 'There is lots of this sort of product around,' says Nick Hughes of adviser Chiltern. Close Fund Management runs one of these schemes, which is mainly invested in the alternative investment market. The average age of investors is 81, and there was a 60 per cent rise in demand for the scheme last year. However, HM Revenue & Customs appears to be taking steps through which it could 'take away this tax relief if they thought too many people were using it', says Martin Donn of accounting firm Blick Rothenberg.