We’ve seen a number of tax planning schemes in the headlines in recent weeks. David Cameron's mother giving £200,000 to him and the late Ronnie Corbett selling his million pound mansion in 2003 have focused particularly on Inheritance Tax (IHT).
It’s a tax which can actually affect many of us. When you add together savings, belongings, pension and life assurance proceeds you may be surprised what you’re estate is worth. If you own a house, it’s likely to have been rising in value over the years as well. The average house price in England is now £186,000.
Most of us have an IHT allowance of £325,000 available to our estates on death. IHT is payable at 40 % on the excess. If you’re married and / or have a business interest there may be useful IHT planning to be done through a Will. A spouse exemption from tax, together with tax relief on a business, could wipe out IHT on the first death. A carefully drafted Will ensures much reduced IHT on the survivor’s death too.
Not everyone has these options though. You may be single, living together but unmarried or may not have a business to leave. Will planning may not be the best way to reduce IHT. There are plenty of other steps you could take however to reduce it.
Everyone has an annual IHT exemption of £3,000 a year for gifts. If you make a gift, up to £3,000 of it won’t be put back in your estate on death. You can give away more than £3,000 a year but you’ll need to outlive it by seven years. If you don’t, the value could be brought back in your estate for IHT purposes. You may be able to make unlimited gifts from surplus income (more than £3,000 each year). This might be from share dividends or a pension for instance. There are rules to be followed but it’s a very useful, and little known, tax planning measure.
With the right legal advice on how to structure gifts you can significantly reduce IHT. Our experienced estate planning advisers would be pleased to speak to you. Please don’t hesitate to call us on 0175 321 6399.