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Monday, 23 April 2012

Twelve Tips towards making Inheritance Tax Savings

1. Ensure you make a Will - By making a Will you ensure that your assets are distributed in the way you want. If you leave everything to your spouse by way of a Will, the transfer will be tax exempt. However, if you die without making a Will (intestate) then it is possible that not all your assets will transfer to your spouse, meaning that Inheritance Tax might be payable. We provide a cost effective and time efficient service to enable you to achieve this and the service can be found here 

2. Emigrate - Changing the country which you are deemed to be resident for tax purposes is far more difficult than just changing the country you regard as home. If you are domiciled overseas, then only assets based in Britain will be subject to IHT, whereas IHT would cover your worldwide assets if you were domiciled here. You should always ensure that you have a Will in each country that you own assets BUT be sure that one Will does not revoke the other. Always seek professional advice with regard to your assets if you are considering moving abroad.

3. Give it away! - Gifts made prior to your death are potentially tax exempt. If you die within seven years of making the gift then, if your estate is taxable, tax will be payable on the gift, however this is on a reducing scale. You must ensure that you give the whole of the gift and do not “reserve benefit” in anyway, e.g. transferring ownership of your house but continuing to live there – under circumstances such as these the property may still be a taxable asset. 

4. Charitable Gifts  - Gifts to registered charities are tax exempt and therefore, if you have a favourite charity, be it an animal charity, children’s charity etc, why not consider leaving them a legacy, whether an asset or monetary gift? This can therefore reduce the value of your taxable estate. 

5. Monetary gifts - Each person has a £3,000 annual allowance for gifts to anybody, this can also be carried forward for one year, so if a married couple have not used their personal allowance in one tax year they could potentially give away £12,000 tax free in the following tax year – even if one or both of them were to die within seven years of the gift. There is also the ability to for parents to give up to £5,000 as a wedding gift to their children – that could be £5,000 from each parent to each adult child.

6. Make it a family affair - Discretionary trusts can be set up and this enables assets up to the nil rate band of IHT (currently £325,000 per person or £650,000 married couple or civil partnership) to be free from IHT, so long as the donor survives seven years. The donor will retain control of all of the assets, unlike giving outright gifts. 

7. Farm the land! - Numerous rules govern business, property and agricultural tax reliefs, and it is imperative to obtain professional advice before taking such a step. There are many pitfalls, not least the risk of losing your capital while trying to avoid tax! However, generally speaking agricultural land which is let out can become IHT-free after seven years and if you like the idea of becoming a farmer yourself then by personally farming the land it is possible that the land would become IHT free after just two years. 

8. Gifts from Income  - People with a high level income could make substantial tax savings: to show that the payments are made from income, three tests need to be satisfied: 
• they must be made out of income, not e.g. from sale of an asset; 
• there must be a realistic intention to make regular payments; 
• the payments must not reduce the donor’s standard of living.

9. War wounds  - Where it can be proved after their death that the donor died as a result, even indirectly, of their injuries suffered during military service then that person’s estate may become tax exempt. This point enabled a Duke of Westminster to avoid IHT when he died many years after injuries sustained during the Second World War. This may now be relevant to more people, following the situations in Iraq and Afghanistan. 

10. Equity Release  - Now that it is impossible to shelter the family home from IHT and remain living in it, another solution is to spend some of the wealth in that asset before it can be taken into account for tax. Equity release schemes are widely available. Independent professional advice should always be sort before entering into such an agreement. 

11. Individual Savings Accounts - Individual Savings Accounts (Isas), assist in the avoidance of income and gains tax – but they do not offer protection against IHT. 

12. Spend it - Well, this one does not really need any explanation does it? However, if you are stuck for ideas why not take a long cruise or exotic holiday. Be careful not to buy assets which will increase in value, such as an antique, thereby defeating the object of diminishing the value of your estate. 

And above all....

perhaps this is the most important tip of all: PLAN AHEAD.

For further information regarding estate planning please contact Hardeep Nijher on 01992 642333 or email

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