250,000 families face inheritance tax grab – but there is a way out

House price inflation is a key driver of ballooning IHT receipts. The average property in London is now worth £526,842, according to the Halifax House Price Index. But the main IHT allowance and family home allowance are frozen at £325,000 and £175,000 respectively, giving an individual £500,000 in IHT-free allowances – still not enough to cover the average value of a London property.

However, families were handed the most significant IHT giveaway in years when Mr Hunt announced last week that the pensions lifetime allowance of £1.073m will be scrapped.

While inherited pensions can be subject to income tax, families often forget that pensions are IHT-free. The abolition of the LTA means families can technically stash away “unlimited” sums free of IHT, capped only by the annual allowance, which Mr Hunt increased from £40,000 to £60,000.

Dean Butler of pension company Standard Life said the removal of the lifetime allowance had “supercharged” the attractiveness of pensions as a means of passing on wealth from generation to generation.

Tom Selby of investment platform AJ Bell said using pensions to avoid IHT will become a “no brainer” for savers. “Money left in pensions can be passed on to your nominated beneficiaries IHT-free, and completely tax-free if you die before age 75.”

There are a number of reasons why saving into your pension is more appealing than other strategies for avoiding IHT, such as investing in assets that qualify for “business relief” or setting up a trust.

Andy Butcher of wealth manager Raymond James said: “Trust arrangements can be complex and difficult to navigate, whereas leaving a pension to your beneficiaries is a simple process if done correctly. There is also the added benefit of tax relief when adding to the pension versus a potential tax charge of 20pc when setting up a trust arrangement.”

Any money held in qualifying shares listed on the Alternative Investment Market are free of IHT. But investing in these firms can be risky. 

Jason Hollands of the platform Bestinvest said the regulatory requirements for companies listing on the Aim are much lighter-touch than they are for the FTSE’s main market, so choosing solid investments can be a minefield for investors.

“There have certainly been a number of significant successes on the Aim, such as Fevertree Drinks and video gaming group Keyword Studios, but there have also been a number of blow-ups over the years such as ScotOil Petroleum, Patisserie Valerie and drinks wholesaler Conviviality. You really need to know what you are doing when investing directly in Aim shares, you have to be super selective,” Mr Hollands said.