Despite the current economic downturn, many people remain concerned about inheritance tax (IHT). However, the current economic climate may present some good IHT planning opportunities.
IHT is charged on a person’s estate at death and, in some circumstances, on lifetime gifts. The tax is payable at a rate of 40% on the value of an estate over and above the nil rate band, which is currently £325,000. However, most transfers between spouses and civil partners are exempt, so that no liability to IHT arises.
Bunkers’ tips for reducing your IHT bill:
The simplest way to save IHT is to give away assets and survive seven years. Gifts of cash are straightforward, but gifts of other assets, such as properties or investments, can raise capital gains tax (CGT) issues. In the light of the recent widespread falls in asset values windows to lessen the potential impact of CGT may have opened.
· You are probably aware of the £3,000 annual exemption for gifts out of capital, but did you realise that you can carry forward any unused exemption from the previous tax year? Married couples each have their own annual exemptions so there is scope for additional savings there.
· Surplus income can often be given away tax-free. Provided the conditions for relief are met, quite large sums can be transferred without IHT consequences by those who are lucky enough to have unused disposable income.
Consider meeting any IHT liability with an insurance policy, written in trust. Although this does not reduce IHT, it does provide your heirs with the means to pay it.
Consider other financial products such as:
- Discounted Gift Trusts – providing immediate IHT savings, tax-free capital growth (although no access to capital) and a regular income stream.
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Loan Trusts & Wealth Preservation Bonds – providing gradual IHT savings, a regular income stream and the ability to access your capital outlay.
- Consider Business Property Relief solutions – these can offer IHT savings after 2 years, return of capital at any time and the ability to diversify your assets. There are alternatives to direct investment through Alternative Investment Market (AIM) shares.
- Have an up to date, well-drafted will. Bear in mind that, following the Finance Act 2008, simple wills leaving everything to a spouse or civil partner may, on current figures, allow up to £650,000 to pass, free of IHT, on the second death.
If you would like to discuss IHT planning further, please get in touch with your usual contact at Bunkers or with Richard Bates who will be pleased to assist. Telephone: 01273 766910
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