What Can I Do To Cut My Tax Bill?
There are several ways to reduce and even eliminate IHT. Some are fairly straight forward and others are quite complex. Factors such as properties (ownership and values) business holdings and pension arrangements could all have an effect. Therefore in all cases you should get professional advice.
As IHT is decided by the law at the time you die it is important that you have a flexible approach to the problem.
As IHT is decided by the law at the time you die it is important that you have a flexible approach to the problem.
Married Couple with Children & Assets of £700,000 (*Prior to 9th October 2007. See Below) |
ILL ADVISED COUPLE |
WELL ADVISED COUPLE |
Husband dies |
Husband dies |
Leaves everything to his wife |
Leaves £312,000 into a Nil Rate Band (NRB) discretionary IOU trust to wife and children |
Wife dies with £700,000 estate |
Wife dies with £388,000 in her estate |
Wife's Nil Rate Band (NRB) exemption applied of £312,000 |
Nil Rate Band of wife now used at £312,000 |
Balance of estate charged @40% IHT tax rate |
Balance of estate £66,000 charged @40% IHT tax rate |
Tax payable before children can inherit: £155,000 |
Tax payable before children can inherit £26,400 |
0 |
Saving: £128,000 |
Please note: above table based on 2008-2009 (NRB) Inheritance Tax free allowance and that the annual gift exemption would be used where appropriate in addition to the NRB IOU discretionary trust. The Chancellor has announced that in the tax year 2009-2010 the NRB will be increased to £325,000. This will give a potential saving of £130,000 in 2009-2010, through use of the NRB IOU discretionary trusts.
What Should I Do Next?
There are a number of options available depending on your individual situation. Sensible planning now will help safeguard the value and destination of your money and property in the future. We strongly recommend you make an appointment with a consultant as soon as possible.
* Alistair Darling announced in his pre – budget speech of 9th October 2007, later confirmed in his budget address of 12th March 2008 that a spouses executor may potentially claim any unused percentage of the nil rate band (NRB) of the first spouse to die on their subsequent death.
This is a major change to IHT planning but does rely on many factors and the burden of proof rests with the executors who may be personally liable for any mis-information submitted to HMRC.
Whist this is a welcome change by HMRC, many other factors may result in clients having a continued need for more defined structures, e.g. where children from previous marriages are concerned, or where creditor protection is a concern.
Given the complexities involved we may therefore advise our clients to strongly consider the continued use of trusts which we would be happy to discuss dependant on your own personal circumstances and provide a bespoke service for your needs.
* Alistair Darling announced in his pre – budget speech of 9th October 2007, later confirmed in his budget address of 12th March 2008 that a spouses executor may potentially claim any unused percentage of the nil rate band (NRB) of the first spouse to die on their subsequent death.
This is a major change to IHT planning but does rely on many factors and the burden of proof rests with the executors who may be personally liable for any mis-information submitted to HMRC.
Whist this is a welcome change by HMRC, many other factors may result in clients having a continued need for more defined structures, e.g. where children from previous marriages are concerned, or where creditor protection is a concern.
Given the complexities involved we may therefore advise our clients to strongly consider the continued use of trusts which we would be happy to discuss dependant on your own personal circumstances and provide a bespoke service for your needs.
