Inheritance Tax (IHT) is no longer something that only affects the super-rich. The rapid rise in the value of homes means that many of us will cross over the threshold barrier and could end up paying IHT – despite not feeling particularly wealthy.

In its simplest form, IHT is the tax payable on your estate after your death if the value of your estate exceeds a certain amount. The estate is everything of value a person has less everything they owe. It must be professionally valued, right down to second hand furniture.

For 2008/09 the first Ł312,000 is tax free (known as the nil rate band) and anything in excess of this will be taxed at a rate of 40%. On the 9th October 2007 the Chancellor of the Exchequer announced that, with immediate effect, spouses and civil partners will be able to transfer their nil rate band allowances so that any part of their nil rate band not used when the first person dies can be transferred to the survivor and added to their allowance. This means that if you are a married couple or civil partners you can have a combined estate of Ł624,000 before becoming liable for IHT.

There are exceptions to IHT. Certain beneficiaries are exempt from paying tax, namely a spouse or civil partner, UK registered charities, UK political parties and some national institutions (eg National Trust). But anything left to children, partners (unmarried), other family members or friends will be liable for tax. During your lifetime you can reduce the value of your estate for IHT purposes: Some gifts given in the seven years before death are exempt (eg annual exemption of Ł3,000, and certain sums given as wedding gifts); and even with many larger gifts and gifts made into certain trusts, provided you survive seven years from the time of the gift, there will be not IHT to pay. There are also exemptions which mean that the value of certain property can be left out of the IHT calculation (eg some business property and agricultural property can attract up to 100% relief). No wonder many people consider IHT a voluntary tax!

IHT is a tax that can be planned for, at least in terms of its impact. One factor that should certainly feature in your planning is making sure you have an up-to-date, tailor-made Will. Dying without a Will means that your estate will pass according to the rules of intestacy not necessarily as you intended and not in the most tax efficient way. This could mean that tax-saving opportunities such as the benefit of your the nil rate band may be lost. Of itself a Will won’t save IHT, but it will ensure that your assets go where you intended and that any IHT planning you have done will be effective.