Inheritance Tax Planning

Ensure that, at death, your estate goes to your family; not the government.

Whilst Gerard Associates Ltd. Can give you advice on certain aspects of taxation we are not tax advisers. We can recommend fellow professionals to help you if requested. We do however give advice on the following:

INHERITANCE TAX (IHT)

Inheritance Tax is a tax that is levied on your estate when you die and pass your estate to your beneficiaries.

Transfers to your spouse are exempt, and so for the vast majority of people IHT is a tax levied on the death of the longest living spouse.

Inheritance Tax in the UK is calculated by working out the value of your entire worldwide assets if you are UK domiciled, and then levying tax as follows (for 2005/06)

• First £0-285,000 Nil Rate Band (no Inheritance tax)
• Over £285,000 40%

i.e. no tax on that part of the estate within the Nil Rate Band

Your estate includes all of your property, investments, home etc, (wherever in the world they are located), but for practical purposes it does not include business assets such as farms (where you are the owner occupier or tenant), unincorporated businesses, unlisted or AIM listed companies. To be fair however, there is much devil in the detail and if you class yourself as a businessperson, entrepreneur or landlord you should have a full analysis carried out.

The Most Common Inheritance Tax Mitigation Idea That Doesn't Work

"Giving something away but keeping it really."

This comes in many guises, the most common being to try to give your house to your children while being allowed to live in it until you die, giving a valuable work of art to your children but actually keeping it on your wall, or putting money into a trust where it is possible for you to get it back out.

All of these ideas fall foul of the Gift With Reservation rule. Broadly speaking this means that a gift is not a gift if the donor retains any actual or potential benefit from the gift, i.e. the house as a home, appreciating the art, the ability to access the money.

Some Common Methods that Do Work

1. Utilising the Nil Rate Band allowance for Couples: There are methods of utilising this allowance which can substantially reduce potential Inheritance Tax Liability. Most couples simply pass all of their assets to each other on first death. When the last partner dies, the whole estate passes to the children/beneficiaries. This means that the Nil Rate Band of the first person to die is wasted. Depending on the type and value of your assets this method of inheritance tax planning can save you upto £102,000 (2003/2004)
2. A Whole of Life Plan: this is a simple method of reducing your inheritance tax liabilities. A 'Joint Whole of Life Second Death' insurance policy is set up and is then written in trust to your beneficiaries.
3. Gifting: the inland revenue allow you to "gift away" certain amounts each tax year without any tax implications. However, 'Gifting' is not straight forward and there are limitations as to the amoutns gifted and the type of recipient which need to be carefully understood. We can help make these rules clear to you.

Gerard Associates can show you how to significantly reduce this onerous tax on your estate. If you have an estate for which Inheritance tax may be an issue it is important to seek advice and plan in advance. We will be able to assist you in this.

The FSA does not regulate advice given on matters of tax