INHERITANCE TAX

It was Roy Jenkins who said in 1986 that inheritance tax (IHT) “was a voluntary levy, paid by those who distrust their heirs more than they dislike the Inland Revenue.” What he meant was that IHT is an easy tax to avoid paying. You simply make a gift of your capital and property to your children and, provided you then survive for 7 years, IHT will be avoided.

The snag with this is that most of us cannot predict with certainty when we are going to die. We are concerned that if we give away enough of our money to escape IHT we might then need it later in retirement – for care needs for example. What if you are to live to a ripe old age – what then do you survive on?

Furthermore, if you give all your capital away to your children, are you in danger of enriching a none-too favourite son-in-law, or daughter-in-law, if there is a divorce from your cherished daughter or son. Your assets then would be a part of their divorce settlement. What also if your offspring suffer a business failure? Might your son or daughter’s business creditors then claim your assets?

Worse still suppose you give a large sum to your son, who then spends it at an alarming rate on fast living, fast women and even faster cars. You have to live for 7 years after making the gift, yet the shock of watching the money you painstakingly built up evaporate before your eyes could kill you before your time!

One way to tackle such issues of gifting assets to avoid IHT, whilst retaining a measure of control, involves use of Will planning and various kinds of trusts. We use all of these in the help we give to clients.

If your estate is sizeable, be aware IHT is levied on the excess above a nil rate band at 40%. This means that an estate of £1,000,000 could suffer IHT to the tune of around £280,000 – a massive 28% of the overall value.

Quite often all this means you have been taxed at least three times on the assets you accumulate. Once when you earned the income in the first place – up to 40%, twice while monies have been invested again up to 40% if outside tax shelters, and finally by IHT again at a whopping 40%. This really is taxed to death.

Notwithstanding recent onerous budget changes to catch more people in the IHT net we can still help you mitigate IHT. The case studies give you an insight into how we help clients achieve this. They show how IHT can be mitigated in ways that are tried and tested over decades and are not likely to be attacked by the HMRC. Our consultants have significant expertise in this area of financial planning. Do call us for individual help and guidance or go to the Enquiry Form.