IHT Strategies
The nil-rate band
Perhaps the most important IHT exemption is the nil-rate band.
This
means that an IHT rate of nil is applied to the first part
of your
taxable estate, which falls within the £275,000 band.
The band is planned to be £285,000 in 2006/07, and £300,000
in 2007/08.
Four IHT planning pointers
Transfers between spouses
Transfers of assets between spouses are exempt from IHT. This
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includes both lifetime transfers and transfers made on death.
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However, other lifetime gifts may be more tax-efficient -
and there are restrictions if one spouse is non-UK domiciled
(contact us for more details).
Lifetime gifts
Many smaller or regular lifetime gifts are exempt from IHT,
and larger
gifts may become exempt after seven years (talk to us about
the rules)
so a strategy of making gifts in your lifetime can substantially
reduce
your taxable estate on death. You can also take out life
insurance to
cover any IHT which might be due following your death within
seven years
of making larger gifts.
Trusts
Trusts allow you to make gifts without giving the recipient
complete
control over the asset and/or the income it generates. That
control can
be vested in the hands of the trustees (who might include you).
The gift may be a 'chargeable transfer', so potentially liable
to IHT at 20%, but
only to the extent that the value of the gift, plus the value
of any
other chargeable transfers in the preceding seven years, exceeds £275,000.
You
can also use a nil-rate discretionary trust in your Will to
create an opportunity, on your death, for your executors to
by-pass your spouse and give assets worth up to £275,000
to other beneficiaries, tax-free, if your spouse does not need
them.
Life assurance policies
Life assurance policies could be written into trust so that
the proceeds do not form part of your estate on death.
The most common assignees are spouses, family members, and trusts.
IHT and the family home
Most homes in England and Wales are held under a joint tenancy
- so that
if one partner dies, the property passes directly to the survivor.
However, where a discretionary Will trust has been established
to avoid
inheritance tax, a joint tenancy can be changed to a tenancy
in common
where each partner owns half of the property. This allows both
partners
to leave the value of their half of the family home to the
discretionary Will trust.
Your business
In general, a business you control will attract business property
relief
of 100%. Your business can be passed on with no IHT payable.
Assets
owned by you but used by a partnership in which you are a partner,
or a
company you control, attract business property relief of only
50%.
Similar reliefs apply to agricultural property.
Your Will
Careful Will planning is essential for everybody. A well-drafted
Will
can ensure that the wealth you have built up during your lifetime
benefits the right people on your death - and it can also
be structured
to save tax. A discretionary Will trust could allow your executors
to
transfer some of your estate to your children (making use of
your
nil-rate band) if your spouse does not have need of the assets.
This
creates an opportunity to save up to £110,000
of tax.
Charitable giving
Generally, all gifts to charity are exempt from IHT. This includes
outright gifts and transfers into charitable trusts, although
foreign
charities are excluded. It is worth noting that it is more
tax-efficient to make a tax-free gift from your estate than for
a gift to come from a
beneficiary's share of the after-tax estate.
We are living in an age of IHT planning opportunity.
What you do is your decision, but the sooner you decide
to plan, the better - talk to us at Appletons today.
