Inheritance tax was first introduced in 1796 in order to finance the war against Napoleon Bonaparte. Originally known as Legacy, Estate and Succession Duties, money was collected on properties worth over a certain value and paid back to the government. The basic idea was that only the very wealthy were caught under the net.

Inheritance tax was first introduced in 1796 in order to finance the war against Napoleon Bonaparte. Originally known as Legacy, Estate and Succession Duties, money was collected on properties worth over a certain value and paid back to the government. The basic idea was that only the very wealthy were caught under the net.

Famously characterised by the Labour Chancellor Roy Jenkins in 1986 as “…a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”, inheritance tax has been at the forefront of political ideology and created vast amounts of controversy and criticism during its 218 year existence. Today, (subject to various exemptions and reliefs), inheritance tax is typically payable on a deceased’s estate over the ‘nil rate band’ threshold (NRB) currently £325,000 at the rate of 40%. Assets passing between spouses are exempt, but on the second death all assets are subject to inheritance tax above £650,000 on passing to the children or other beneficiaries.

Statistics recently published by HMRC state that £3.4 billion inheritance tax was paid in 2013-14, rising by 8.6% compared to 2012-13, somewhat ahead of the 7.9% year on year growth observed from 2011-12 to 2012-13 . The Office for Budget Responsibility warned last week that the number of families hit by inheritance tax is set to double in the next 5 years. With this in mind it is not just the rich who will be hit hard, but also the middle classes, whose rising property values push them over the tax threshold.

Due to these increases, politicians have been forced to address the issue once again. The most recent pledge has come from David Cameron himself, who at an Age UK event in London this week, said that inheritance tax should only be paid by the ‘very wealthy’ and suggested a big increase in the NRB if the Conservative’s win next year’s election. Mr Cameron said ‘I think that even at £650,000, particularly in some parts if the country, you see someone who has worked hard, put money into their house and want to leave it to their children and they don’t feel that they are, in any way, the mega-rich, and they feel “I should be able to do that without having 40 per cent of it knocked off”. This may be viewed by some as a foolish pre-election pledge to increase votes.

This hasn’t been the first time a promise to raise the NRB has been made. In 2010 George Osborne proposed raising the threshold to £1million, but this was abandoned after Liberal Democrat opposition. Even back in 2007 the mutterings of potentially moderating inheritance tax were addressed but instead rates have stayed frozen at £325,000 since 2009, and will do until at least 2015. Similarly, last year a decision was made to raise the NRB by 1% in 2015-16, but this has since been deserted.

Time will tell whether the Conservatives keep to their word, but in the meantime it is important to organise your financial affairs well in advance. By making sure you have a Will in place, and with timely inheritance tax planning, you can make sure the right people receive your money at the right time, and keep your inheritance tax liabilities as low as possible.