Inheritance Tax: Planning and advice
According to the annual Tax Action report, UK taxpayers will waste nearly £2bn this year due to poor inheritance tax planning. Liability to IHT can often be avoided, or at least substantially reduced, with early IHT planning.
IHT is essentially a form of 'death tax', the tax charged on what you leave behind when you die. Many argue that this is unfair as it's a further tax on assets accumulated through hard work during a lifetime that may have already taxed.
Everyone in the UK has a tax-free inheritance allowance of £325,000 (2010/11 tax year). This means that if you are single and die with an estate worth less than £325,000 there will be no tax to pay.
However, if your estate is more than £325,000, 40% IHT will become due on money, property and investments, but after deducting debts and expenses such as funeral costs.
What if I'm married?
IHT is not payable when assets are passed between husband and wife, or between civil-partnerships.
Married couples or civil partners can transfer their unused IHT allowance to their spouse when they die; therefore, a couple would escape IHT by doubling both their allowances to £650,000.
IHT that becomes due on money or possessions passed on when you die is usually paid from your estate.
Inheritance Tax Planning
Liability can often be avoided, or at least substantially reduced with early planning, here are some suggestions:-
Make a will
Making a will and being sure people know where to find it is the first step to ensuring your estate is shared out exactly as you want.
Gifts of £250
Gifts of up to £250, per tax year, per recipient, are a simple and legitimate way of minimising IHT. If you had 12 grandchildren, you could give them £250 each as a birthday present therefore minimising your IHT liability by £3,000 each tax year.
Gifts to charities, political parties or national institutions
Gifts of any size to charities, political parties and national institutes are exempt, hence leaving money to the cats home is at least efficient tax planning.
The 7 year rule
Gifts given away up to seven years before you die are usually counted as part of your estate and subject to IHT, however gifts given within five to seven years of death can also be mitigated. Early inheritance planning on how to pass on assets is essential.
IHT contains a huge midfield of potential pitfalls and may be subject to changes; professional advice should always be sought before taking any action, especially if you have an estate valued at more than £325,000.
Jeffreys Henry LLP is a leading firm of chartered accountants in London and tax accountants in London. For more information on Inheritance Tax Planning or other tax advice visit jeffreyshenry.com.