MORE than 1m families who planned ahead to save their children inheritance tax (IHT) could be thousands of pounds worse off following Alistair Darling’s prebudget report last week.

Married couples who took out insurance schemes or trusts to avoid death duties may have had their plans rendered worthless by the chancellor’s move on inheritance tax.

Some of the insurance plans cannot now be dismantled, meaning families face paying around £2,000 a year until they die for something that could be useless.

Meanwhile, millions of families who took out with-profits bonds run by life insurers thinking they would save tax have had their hopes dashed. They will now pay more tax than investors in unit trusts.

They are just some of the losers in a report that has been described by one accountant as “full of unintended consequences that will damage millions of people”.

At first glance, the new chancellor’s prebudget report appeared to be a boon for well-heeled middle-class families. Those with second homes and buy-to-lets were handed a tax boost potentially worth £4 billion thanks to his overhaul of capital-gains tax. Investors in unit trusts and most shares will also benefit from lower tax on profits.

Darling was also praised for allowing married couples and civil partners to combine their inheritance-tax allowances, worth a total of £600,000 at today’s level, without the need to do any planning.

However, the small print revealed a host of hidden losers.

The losers

Well-off married couples who planned ahead

Discounted gift and loan trusts have been sold in large numbers by insurers over recent years as families have sought to escape inheritance tax (IHT).

They were typically taken out by married couples with estates above the £300,000 threshold who wanted to give away cash free from IHT, but continue to draw on the money.

However, the chancellor’s move to in effect double the IHT threshold has at a stroke taken about 2.4m households out of the death-tax net, according to Halifax, making some plans obsolete.

The schemes can cost as much as £5,000 if you want to shelter £100,000 of assets, and charge about 2%, or £2,000, a year on top.

John Hendry at insurer Friends Provident said: “Once you have set up a discounted gift trust you are tied in by the trust rules. There is nothing you can do.”

With a loan trust, there may be exit charges of up to 8% and a hefty tax bill.

Families who have taken out whole-of-life policies to pay their children’s inheritance-tax bills should also consider stopping payments into their plans if their estates are below the £600,000 threshold. However, once the payments stop you lose all your benefits and the premiums cannot be repaid.

Bob Fraser at Towry Law, an adviser, said: “Whole of life schemes should not have been sold to people with estates of less than £600,000 because will trusts were a cheaper and more effective form of planning. But even they could be obsolete now.”

Up to a million couples who have drawn up wills establishing a trust to escape death duties should review their schemes. Nil-rate band discretionary trusts have been employed widely by married couples to use both their IHT allowances, but they could end up worse off than couples who did nothing.

Take a husband and wife with a £1m estate. The husband dies this year and assets worth up to the nil-rate band – £300,000 - go into a trust for the children. That chunk is removed from the wife’s estate but the husband’s nil-rate band is lost for good.

When the wife dies, 10 years later, the remaining £700,000 estate will be taxed at 40% on assets above her IHT allowance at the time. If it was £500,000 there would be £80,000 in tax to pay.

If they had done nothing and the husband’s assets simply passed to the wife on his death, his full IHT allowance is preserved. When she dies, both nil-rate bands are now available and their beneficiaries can double up the allowance to £1m. There would be no tax to pay.

Wealthy investors in insurance bonds

Returns from insurance bonds are taxed as income – higher-rate taxpayers pay 40% and those in the basic-band pay 20%.

However, a quirk meant the bonds were attractive to wealthy savers: higher-rate tax could be rolled up until the bond was cashed in.

If they had fallen into the basic-rate band by then, perhaps because they had retired, they would avoid the higher-tax completely.

Following the chancellor’s changes to the capital-gains tax regime last week, however, bonds look decidedly unattractive compared with unit trusts and direct shares. While investors in the latter now pay a flat rate of 18%, the tax on bonds is still 20% or 40%.

You should be able to cancel your bond if you invested in the last 30 days. But if the cooling-off period" has already passed you may face penalties of up to 10%.

Workers who save into their company schemes

Up to 2m workers buy shares in their firms through save-as-you-earn schemes, and some could see their tax bills rise by up to 260% under changes to the capital-gains tax regime for “business assets”.

Basic rate taxpayers who hold their shares for two years or more after they are granted could see their tax rate jump from 5% to 18% from April, while higher rate taxpayer will pay 18% instead of 10%.

Francis O’Mahony of BT Group, which has about 53,000 employees in its scheme, said: “It is due to mature in August with gains of up to £16,000. Normally, two thirds of our workers hang on to their shares, but this could discourage them and we are taking the matter up with the Treasury.”

Savers with windfall shares

Investors who still own windfall shares they received when companies such as BT, British Airways and British Gas were privatised in the 1980s could lose out as a result of the changes to the capital-gains tax rules.

Investors with assets purchased before 1998 currently benefit from indexation allowance, which means you only pay tax on gains above inflation, but this will be scrapped from April, hitting millions of long-term shareholders.

Basic-rate taxpayers, including many retired shareholders, face a double whammy because at the moment, their rate can be as low as 12% if they have owned the shares for more than 10 years, compared with 18% from April.

Gavin Oldham at The Share Centre, a broker, said: “Most people will not be affected because the value of their holdings is less than the annual CGT allowance. But it could be a problem for people who applied for a larger number of shares than the minimum allocation or those who reinvested dividends.”

Stephen Herring at accountancy firm BDO Stoy Hayward said: “The CGT exemption is a great benefit and people should look to maximise it.

"If the vale of your gain is greater than the allowance and you do not need to sell all of your shares at once, hold on to some until another tax year."

Pension savers

Millions of middle-class taxpayers will be up to £1,300 a year worse off in retirement after Labour bought forward plans to reform the state second pension, a top up to the basic state pension formerly known as Serps.

There was also a clampdown on executives using a certain type of pension to pass on unused assets to their heirs tax free.

Company car drivers

Company car drivers who use free fuel for personal use will also pay more. The fixed figure on which the fuel benefits charge is calculated will rise from £14,400 to £16,900. This means that the amount employees have to pay for use of their company cars will increase.

A higher-rate taxpayer driving a two-litre Ford Focus C-Max could pay £1,325 under the current rates but £1,555 from April - £230 more. An employee with a car that emits more pollution could pay up to £330 more, from £1,901 to £2,231.

And the winners...

Well-off married couples who didn’t plan ahead

It’s not often you are rewarded for doing nothing, but that’s what Darling did last week when he raised the IHT allowance for married couples to up to £600,000. Millions of families who did nothing to protect themselves are up to £120,000 a year better off.

Second homeowners and buy to letters

Britain’s army of buy-to-let investors and second-home owners are the biggest winners from the CGT changes. Many will see their CGT bills fall significantly when the new flat rate of tax is introduced next April.

At present, higher-rate taxpayers can reduce the effective rate of tax they pay to 24% - but no lower. From April they will pay just 18%.