Inheritance Tax - A Concise Guide

p>With ever-increasing property prices, more andyou soldyour house to your children you may have to
more people's assets arenow worth more than thepay full market rent. Also,they could be liable to pay
inheritance tax threshold of £285,000,which hascapital gains tax on it if it is a secondproperty for them.
never been increased in proportion to the recentHowever, within certain guidelines you can give away
propertyboom. With a rate of 40% inheritance tax onsome assets andgifts to friends and relatives, known
any assets above theas 'potentially exempttransfers'. These will not be
£285,000 threshold in the estate, this can reallysubject to inheritance tax as long asthey are given at
put a dent inwhat your heirs receive from your estate.least seven years before you die. If you die
Inheritance tax is levied upon a person's death. Once allwithinseven years of giving a gift, tax will have to be
of theirassets have been totaled up, anything over thepaid on a slidingscale.
threshold will have tobe paid by the executors of theirSome gifts are completely exempt from the
will.inheritance tax rules. Youcan gift up to £3,000 in
It's becoming increasingly difficult to avoid inheritanceany tax year, plus up to £3,000 inunused
tax, butthere are some strategies that you can put inallowance from the previous year. Unused allowance
place to help minimizeits impact. Inheritance tax is ancan only becarried forward from one previous year.
extremely complicated subject,though, so you shouldThere's also an allowance forwedding gifts to children
never attempt to make any plans yourself(up to £5,000 for each child) andgrandchildren
withoutgood professional advice, otherwise you may(up to £2,500 per grandchild) and other friends
end up making your taxsituation worse.andrelatives (up to £1,000). A small gift
Make a willallowance of £250per recipient per year is also
First, make a will. This in itself won't help you to avoidpermitted.
inheritancetax, but it will make your intentions clear soSome gifts, however, may be subject to capital gains
that any inheritance taxplanning you have put in placetax if any incomeis made from them, e.g. if they are
will come into effect.invested in stocks and shares.
Transfers between spousesGifts to charities
If you're married or in a civil partnership, both of youGifts to registered charities and political parties are
should attemptto use your full threshold separately.always exemptfrom inheritance tax.
Husbands and wives or civil partners can transferTrust funds
assets (such asproperty) to each other withoutIn some circumstances, it's possible to set up a trust
incurring inheritance tax. However,this will increase thefund. However,the rules regarding trust funds were
value of the surviving partner's estate, whichwill bechanged in the 2006 budget torestrict inheritance tax
subject to tax when they die. If this brings it aboveavoidance in this way so it's not always afeasible
thethreshold, inheritance tax will then be due. Anotheroption. Most money held in trust for children will be
possibility is tobequeath your estate to someone othersubject to inheritance tax afterthey reach 18 unless
than your spouse, for exampleyour children. However,they are disabled.
this has its own complications and is notalwaysLife policies
appropriate.Certain types of life policy are exempt from your
Giftsestate underinheritance tax rules. So, it may be
If you want to give something away during yourpossible to pay regular sums intosuch a policy, either
lifetime but still keepusing it, the Inland Revenue may stilltowards a trust or towards your children, in thehope
consider it part of your estatefor tax purposes whenthat it will make enough money to pay some or allof
you die. Such gifts are regulated under thethe inheritance tax bill at the same time as reducing the
'inheritance gift with reservation' rules. For example, ifsize ofyour taxable estate.