Inheritance Tax is, broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue" was a comment made by Roy Jenkins in the House of Commons in 1986.
These days you do not have to be ultra rich to fall foul of Inheritance Tax (IHT). It is true that a married couple, or those in a Civil Partnership, can potentially have joint assets of £650,000 before they pay Inheritance Tax, but anything above that is taxed at 40%, and if you are single then you pay IHT on assets above £325,000. These figures are called Nil Rate Bands (NRB’s)
In the last Labour Budget Mr Darling froze NRB’s until 2014-2015, and despite pre election talk of raising the NRB’s to £1m by Mr Cameron, the freeze has continued, and who can blame him with the government’s coffers being as they were; statistics show that IHT raised £2.4 Billion in 2010.
With careful planning it is possible to reduce the impact of IHT. If, after you have used your annual exemptions, and gifts from income, which incidentally are seldom used, you still have an IHT problem, the simplest way is to give all your assets above the NRB away. Providing that you then live seven years, problem solved, as after seven years all gifts are out of your Estate!
However, you may have spotted the odd flaw in this cunning plan. If you have given away your assets, where do you live? How do you live? What if you want some of the assets back? What if you just want some control?
Thankfully, there are a number ways of mitigating IHT using modern planning vehicles that do not need complicated trust arrangements and can give you both control and full access of your assets. They can provide predictable returns (for those looking for less risk), or traditional investment potential and offer either income or capital growth. They can exempt assets out of one’s Estate after just two years, and in the case of a married couple or Civil Partnership require just one person to survive two years for the plan to be effective, making planning much easier for those more advanced in years, or not in the best of health.
If you would like a no obligation chat about how to pass your Golden Egg to your family, feel free to contact us for a no obligation planning meeting.
Please note that The Financial Services Authority does not regulate Tax advice or Trusts.