Inheritance Tax (IHT)

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Monies lost to Inheritance tax

Her Majesties Revenue & Customs in the current tax year forecast they will raise £3.56 billion pounds an increase of 51% in only five years.(SOURCE HMRC MAY 2006)

How Much Inheritance Tax will the government be paid

Changes arising from the Pre-Budget Report 2007

In his Pre-Budget Report, the Chancellor of the Exchequer announced that for deaths on or after 9 October 2007 it will be possible for spouses and civil partners to transfer their unused Inheritance Tax nil rate band allowances. This means that any part of the nil rate band that was not used when the first spouse or civil partner died can be transferred to the surviving spouse or civil partner for use on their death.

Have you considered the following?

• How much inheritance tax would your estate have to pay if you were to die today?
• What legacy do you intend to leave behind for those who follow?
• Have you used all inheritance tax exemptions?
• Does your will make the best use of the inheritance tax provisions?
• How sure are you that any gifts you have made to avoid inheritance tax are effective?
• Do you wish to avoid inheritance tax but need investment income?
• Do you know about the new rule changes and the transferable nil rate band?

Who pays Inheritance Tax?

Anyone domiciled or deemed domiciled in the UK. Inheritance Tax is levied on worldwide assets. (including overseas property) Non-domiciled individuals will be taxed on their UK assets only.

Domicile

It is considered that you are domiciled in the country where you have your permanent home. Domicile is not the same as nationality or residence. You can only have one domicile at a given time. Rules for determining domicile can be complex, especially for married people of different domicile.

Minimising or Avoiding Inheritance Tax

Fortunately there are ways of reducing the potential liability for inheritance tax. The most effective ways would normally require forward planning.

Gifts

Lifetime Gifts

Gifts can be given during one's lifetime. If they are not exempt, they are referred to as Potentially Exempt Transfers (PETs) as they leave your Estate for Inheritance Tax purposes if you live for seven years after the gift. Taper relief is available for transfers made more than 3 years before the date of death provided the gift would be all or partly subject to Inheritance Tax. For a gift to be effective the donor must not be seen to have reserved a benefit (gifts with reservation).

Tax Free Gifts

Transfers between spouses. Donations to UK charities, political parties or certain national institutions.

Annual Exempt Gifts

Annual gift of up to £3,000 to anyone. If you miss making the £3,000 gift last year, you could gift £6,000 this year. Husbands and wives each have their own allowances.

Small gifts of up to £250 per person.

Normal expenditure out of income. There is no limit on how much can be given as long as the gifts meet three conditions. First, it must be paid out of income not capital. Second, the gift must not affect your normal standard of living. Third, the gifts must be regular - at least once a year. The Revenue may require evidence that you meet these conditions.

Marriage gifts.

You can give up to £5,000 to your own child on marriage, grandparents can give £2,500 to a grandchild and £1,000 can be given by anyone else. The gift must be conditional on the marriage actually taking place.

Maintenance gifts

Maintenance gifts spent on education or training your children under age 18 and in full time education. Also reasonable amounts to support dependent relatives are exempt.