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Inheritance tax;
a voluntary levy for those who do not plan ahead - Part1

Most people today prefer to control how their money is spent

Roy Jenkins famously quipped “Inheritance Tax; it is broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”. This may well be true in a few cases. However, most people today prefer to control how their money is spent, rather than leave it to the Chancellor of the day to choose which pet project your money is spent on.

Inheritance tax was designed to tax the estates of the wealthy, who had inherited their money in the first place. With the growth of home ownership, more and more people spend their entire lifetime saving by slowly repaying their mortgage. Unlike untaxed inherited wealth, we all know that the income used to repay you mortgage is taxed at 20%, 40% or even 45%. Therefore it would be very bad planning indeed if at the end of your life your savings [estate] are again taxed at 40%.

Is inheritance tax only for the wealthy?

General consensus suggested that people think inheritance tax planning is only for the wealthy. In fact nothing is further from the truth. Inheritance tax planning starts with making sure your Will is up to date, which should only cost a few hundred pounds with a local solicitor. Failing to write a Will can be catastrophic as not all assets will automatically pass between husband and wife. Dying intestate (without a Will) increases the time it takes to redistribute the estate and not necessarily to those you had intended. Therefore ensuring your Will is up to date is an essential part of estate planning.

We offer a free initial consultation that will help identify actions you can take to help avoid paying inheritance tax [IHT]. The simplest of these is making absolute gifts from capital. Again care should be taken, especially if gifting assets, as Capital Gains Tax [CGT] may be due on the full value of the asset, even if no money has been received. Again a few hundred pounds spent with a local accountant may save you thousands in the long run.

 

 

break up your capital into smaller pieces

George Osbourne’s summer budget has provided some hope for those concerned about paying estate duties. We will look at these and their limitations in future articles. The current ‘Nil Rate band’ [NRB] will remain at £325,000 per person until the end of the 2020-2021 tax year. One point to consider when considering estate planning is not the value of your estate today, but the expected value at your date of death. According to the new life expectancy calculator on www.riskprediction.org.uk a male age 65 today could live another 17 years and a woman 20 years. Considering that your estate will double in value in 14 years with 5% per annum real growth; looking at the value of your assets in today’s terms may lead to some serious miscalculations and little time left to deal with your inheritance liability later in life.

The chart this week is taken from the 2015 summer budget report and highlights the increased number of households that are falling into the Inheritance Tax thresholds. Inheritance tax is voluntary and can be avoided by simply planning ahead. Make sure that you are not added to this statistic.
We will look at the proposed changes to IHT and how family trusts can help reduce IHT liability and your personal income tax in future articles.

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