INHERITANCE TAX PLANNING

The Financial Services Authority do not regulate some forms of Inheritance Tax Planning.

What is Inheritance Tax and how will it affect you?
You have an Inheritance tax exemption which is usually increased annually and in this current tax year, 6th April 2005 to 5th April 2007 the allowance is £285,000.

On your death, your total estate is valued and if this is more than your Inheritance Tax allowance, then your beneficiaries will pay tax on the balance at 40%.

There are ways in which you are able to reduce the potential tax bill, ensuring that more of your money is passed to your dependants. First of all, it is possible to make gifts from your estate during your lifetime. This way you have the pleasure of seeing your beneficiaries enjoying the extra income and save them tax.

What are these gifts?
You have an annual exemption of £3,000, which means that you can gift this amount each year, free of tax. In addition, if you are able to afford to give away more of your savings, then you can do so and as long as you live seven years from the date of the gift then no Inheritance Tax will be payable.

This is called a Potentially Exempt Transfer (PET).

Other gifts are:

• Gifts on marriage

• from parents up to £5,000

• from grandparents or a party to the marriage, £2,500

• by another person, £1,000


What else can you do to reduce the potential Inheritance Tax problem for your family?

Consider the terms of your will
If you are married it is usual for the terms of your will to pass your estate to your surviving partner and then to any children. This means that you are only using one Inheritance Tax limit as transfers between married people are exempt from Inheritance Tax.

It is possible for your will to be changed so that your estate up to the Inheritance Tax limit at that time passes directly to your children. If this is applied to each of you then you will have used both allowances, saving 40% tax on £275,000 of your estate, which equals £110,000!

Your financial circumstances may mean that this isn’t possible and before making any radical changes to your will it is essential that you seek professional advice.

Your Home
Your family home is most likely to be jointly owned and this is often the main reason for the value of your estate to be above your tax limit. It is possible for this to be changed from joint ownership to what is termed "tenants in common".

This does have additional implications and before proceeding, it is essential that you seek legal advice.

Trusts
Savings can be placed under trust, where you still receive income from your investments, however, capital growth is placed outside your estate for Inheritance Tax purposes. This is called a "Gift and Loan" trust and is only one example of the many types of trust available.

If you are interested in hearing more about trusts and how they can be applied to your savings then please contact us for more information.

Life Assurance
It may be that you are not able to give away part or all of your income as you need all of your money to maintain your current lifestyle.

We can help you to calculate your beneficiaries’ potential Inheritance Tax liability and to arrange life assurance on your life which will be sufficient to pay the tax on your death.