The Chancellor’s failure to raise the inheritance tax threshold in line with increases in rural property prices could be a ticking time bomb for countryside families, warns rural insurer NFU Mutual.

Inheritance tax specialist Sean McCann explained that an 89% increase in rural property prices over the last five years, combined with tighter interpretation of IHT rules by the Revenue, means many more rural dwellers are now facing rising inheritance tax bills.

  “A generation ago, inheritance tax was something that only the very wealthy needed to worry about,” he said. “Today however, higher rural property prices combined with stricter Revenue rules means that far more countryside families are at risk of being hit hard by the tax.”

 “While the Chancellor has announced that IHT thresholds will increase to £350,000 by 2010, it has not gone far enough and many rural families will still be exposed to the tax simply through their properties. For example, in Chiltern the average house price is £384,552 and in East Hampshire it is £300,781.”

 “Fortunately, there are a number of ways for people to arrange their finances to minimize - or completely remove – their estates from IHT.   For example, you can take advantage of some of the government exemptions to reduce your estate and thus lessen the amount of inheritance tax your loved ones will pay.”

You can do any or all of the following:

• Give away up to £3,000 each tax year
  This takes advantage of your annual exemption, which allows you to give away £3,000 each tax year, exempt from inheritance tax. Plus you may also be able to utilise any unused relief from the previous tax year.
• Give small gifts of up to £250 to a number of different people
  Using your small gifts exemption allowance, you can gift up to £250 to any number of people each tax year.
• Give wedding gifts to your children
  The marriage gifts exemption allows each parent to give wedding gifts of up to £5,000 to each of their children (grandparents can gift up to £2,500 to each grandchild). You can also gift as much as £1,000 as a wedding gift to anyone else.
• Give to charities
  Almost all donations to charity are considered exempt, and can help to reduce your inheritance tax liability.
• Give gifts out of your income
  If you make regular gifts (including birthday and Christmas presents) out of your after-tax income (not your capital), that does not impact on your normal standard of living, you may be able to avoid inheritance tax.
• Use a potentially exempt transfer
  Making gifts during your lifetime can be a very tax-efficient way of passing on your wealth. If you make a gift to another individual and it is not covered by any available exemption, it is known as a 'potentially exempt transfer'. This transfer will be free of inheritance tax if you live for at least seven years after making it. If you die within seven years, the original gift will be included in your estate, but any growth in its value will not be included. If a 'potentially exempt transfer' becomes chargeable when you die within seven years of making it, depending on the size of the gift, taper relief may be available so that only part of the full tax has to be paid on the gift.