When trying to minimise the inheritance tax payable on your estate by your beneficiaries, there are many considerations and options to be taken, depending on the circumstances.
Subject to your particular circumstances, the size of your estate and various other factors, we can help you plan by providing you with a list of options and their advantages and disadvantages.
An ever increasing number of ordinary people as opposed to the rich are being caught in the Inheritance Tax Trap.
Following the announcement by the Chancellor on 9 October 2007, new provisions have been introduced allowing the surviving spouse to not only leave their own nil rate band to their chosen relatives but also any nil rate band unused on the first spouses death. This could mean that a surviving spouse could leave up to double the nil rate band at the date of their death.
This is nothing new for thousands of people who have already made tax-planning provisions within their Wills called “Nil Rate Band Discretionary Trust Wills.
This new provision will however lead to those who have not made provisions thinking they do not need to think about it.
The advantage of using the discretionary trust is that no beneficiary owns the assets in the trust, therefore it will not be included in their estate upon death, also as the second spouse is only a discretionary beneficiary, the trust assets could not be available to creditors and cannot be taken in account on application for any means tested benefits.
With property at an all-time high and mortgages often paid off automatically by life insurance policies, a large number of married couples have a combined estate that could benefit from good asset planning and the transfer of the nil rate band in order to preserve their assets for those who you would wish to benefit.
Lifetime IHT Planning
You can reduce the size of your estate by giving assets away. You do have to careful that you do not continue to use the asset that you have given away as this could result in a ‘Reservation of Benefit’. For tax purposes, this would mean that you had never given the asset away.
Exemptions
There are a number of tax exemptions that apply to particular gifts that you can take advantage of:
Small Gifts – you can make gifts of up to the value of £250.00 to any number of individuals in any one tax year.
Wedding Gifts – parents can make wedding gifts of up to £5,000 to each of their children. Grandparents can make gifts of up to £2,500 to each of their grandchildren. You can also give up to £1,000 as a wedding gift to anyone. This gift must be made before the wedding day.
Gifts out of surplus income – you can make gifts of any amount out of surplus income, provided that the gift is not paid out of any savings or capital and it can be proved that your income has funded the gift.
Potentially Exempt Transfers - gifts of any value can be made and if you live at least 7 years from the date of the gift, the value of the gift will fall outside of your estate. If you should die within the 7 years, the value of the gift will be added to the value of your estate however, during the 7 years the amount of tax payable on the gift reduces the longer you live after making the gift.
Trusts
A Trust is a fund containing assets that are controlled by you and/or a nominated third party for the benefit of specific individual’s. They are governed by complex legal regulations and separate tax rules. A Trust can be set up at any time during the lifetime of an individual to become operative immediately or, not until their death. We can provide expert advice on Trusts and their tax implications.
Trusts and Inheritance Disputes
Whilst money is probably not the thing uppermost in your mind following the death of a loved one, eventually the division of an Estate will have to be considered.
Sometimes things are not as straightforward as they might be. Perhaps the terms of a will seem unfair or, as a beneficiary under a Trust Deed, you may be in dispute with the trustees over its interpretation.
If a long term partner dies without having made a will the surviving partner will not automatically inherit the estate even though this may have been the intention of the deceased.
Keith Park Solicitors have considerable experience in the handling of such matters and can help you identify what your rights are and how best to attain them. If you would like the benefit of advice from a skilled solicitor then call on 0800 195 5218 for advice without obligation.
IHT Planning after Death
If someone has died without leaving a tax efficient Will or has died without a Will it may still be possible to rearrange the way they have left their assets, including jointly owned property, to posthumously take advantage of the tax exemptions that are available.
There is strict time limits within which this can be done therefore enquiries should be made as soon as possible.
Seek the advice of the experts.