Inheritance Tax Planning

"Inheritance Tax is a voluntary tax, paid by those who distrust
their heirs more than they dislike the Inland Revenue!"
Lord Jenkins.

Inheritance Tax (IHT) is payable if the value of the deceased's estate exceeds the Nil Rate Band. This stands at £325,000 for the 2009/2010 tax year and any assets above this amount are taxed at 40%.

By way of an example, an estate of £1 million would attract an IHT bill of £270,000 (based on a single person)

If the deceased had three children, they would each take away £243,333 leaving the HM Revenue & Customs as the main beneficiary by some distance!

"But in this world nothing can be said to be certain,
except death and taxes."
Benjamin Franklin , Letter to Jean Baptiste Le Roy (1789)

It is ironic that the most punitive of taxes becomes payable after we have died! Fortunately, with the IHT mitigation opportunities currently available, it should be possible to reduce or even entirely eliminate your IHT liability.

Let us now explore some of the options open to you:

1. Find out where you are

The first step in any IHT plan is to ascertain what your current IHT liability would be. You might not be aware that some of the investments and insurance policies that you already own could afford significant IHT benefits. For example, we at Station Financial Services Ltd will be able to help you ensure that the death benefits from your pensions and life assurance policies are written in trust so that the benefits don't automatically fall into your estate on death.

2. Write an IHT-efficient Will

Once you know where you are, you will need to write a Will to ensure that the right people receive your legacy.

3. Make use of allowances

We all have a number of allowances that we can make use of to reduce our IHT liability. First, there is the £3,000 annual gift allowance per donor. This can also be backdated one year if it has not already been used.

We can then make use of our small gifts exemption by passing £250 p.a. to any number of different donees. In addition, we can gift £5,000 to a child and £2,500 to a grandchild as a wedding present.

Recent changes have allowed married couples to combine their Nil Rate Bands. Therefore the surviving spouse will have a Nil Rate Band Allowance of £650,000 for tax year 2009/2010

Finally, any gifts out of income that are 'regular and habitual' are also free of IHT.

FOR A FREE COMPREHENSIVE REPORT ON YOUR IHT SITUATION AND SOME SUGGESTED SOLUTIONS, PLEASE CONTACT US AT mail@stationfinancialservices.co.uk