The increase in the IHT threshold to £300,000 (from £285,000) on 6 April 2007 was announced last year. The threshold will go up to £312,000, £325,000 and £350,000 over the next three years. The Chancellor estimated that the 2010/11 figure would mean that only 6% of deceased's estates would pay any IHT. There were no changes to IHT rates.
Pre-owned assets tax (POAT)
In 2005/06 an income tax charge was introduced to catch people who had given away assets to avoid IHT but continued to enjoy the use of them. It is possible to avoid the income tax charge by electing to be liable to IHT on the value instead (i.e. reversing the tax planning). The election is supposed to be made by 31 January following the tax year (e.g. 31 January 2008 for 2006/07).
Some taxpayers might not have realised they were subject to the charge. The Budget has therefore allowed the Revenue to extend the deadline for making this election. Where the Revenue discover a situation where the POAT may apply, it should always be possible to choose IHT instead.
It may be that the choice offered is between paying income tax for several past years, with interest and penalties, or opting for a likely IHT charge on current values. The IHT may be more, but the income tax may be unaffordable.
