NEW - Click Here For Our
Inheritance Tax Calculator
Many
people are oblivious to the fact that they could be sitting on top
of a potentially explosive, ticking tax bomb that is continually
being fuelled by rising house prices. The tax in question is
Inheritance Tax (IHT), a non-discriminating tax that doesn’t
target only the super-rich.
Prevention,
not cure
Let’s
consider whether you have a potential problem. The IHT threshold
means that tax on assets valued up to this amount is payable at a
‘nil’ rate. This includes your property as well as your savings,
investments, insurance policies not written under trust and business
assets (subject to the availability of relief at 50% or 100%). The
value of your estate above this threshold could be subject to a tax
of 40 per cent, depending on who inherits your estate following your
death. To calculate your potential IHT liability, please
click here.
“25,000
estates paid £2.4 billion
inheritance tax during 2002.”
(Source: Inland Revenue 2003)
Protecting
your assets from the Taxman
-
If you
haven’t done so already, the first place to start is to write
a will. This will ensure that your assets are distributed as you
want them to be when you die. Provisions to mitigate IHT can
also be included.
-
Assets
transferred between spouses are exempt from IHT, but other
lifetime gifts could also be made in a more tax-efficient way.
-
Most lifetime gifts are exempt from IHT if the donor survives
for seven years and there is no limit on the size of such transfers, so this is an excellent way
of transferring assets that you do not need to keep in your
estate. It may be advisable to cover substantial gifts by
insurance against death within seven years.
-
Trusts
enable you to transfer assets out of your estate for IHT
purposes, but enable trustees to exercise some degree of control
over the capital or income (and you can be a trustee). There may
be an IHT charge on creation of the trust if it is a
discretionary trust, but this would be at 20%, and then only if
the transfer plus previous chargeable transfers made in the
preceding seven years exceeds the ‘nil’ rate.
-
Life
assurance policies should be arranged under trust, so that the
proceeds do not form part of your estate on death for IHT
purposes.
If
you are considering making substantial lifetime gifts you
should take independent financial advice now, as it might be prudent to make them
sooner rather than later.
A
potential IHT liability could be mitigated. If you are
likely to fall foul of it, then an independent financial adviser should be able to help you arrange your
tax affairs to minimise any IHT liability.
|
|
|
|
|
