Inshore Independent Financial Advisers 278 Lymington Road Highcliffe Christchurch Dorset BH23 5ET
Inshore Independent Financial Advisers Ltd is an appointed representative of The Whitechurch Network Limited which is authorised and regulated by the Financial Services Authority.
Inheritance Guide
What is Inheritance Tax?
Inheritance Tax (IHT) is a tax paid to the Government when you die on everything you own. As long as the total value of what you leave behind is less than £325,000 (2009/10 tax year), there won’t currently be any inheritance tax to pay. This is known as the nil rate band i.e. from £0 - £325,000. The nil rate band for inheritance tax and the rate of tax is usually set by the Chancellor each year in the budget. Any assets above the nil rate band could be taxed at a whopping 40%.Our independent financial advisers are experts in inheritance tax planning and cover Dorset, Hampshire, Wiltshire, Surrey and the New Forest but may travel further on request. We have offices in Highcliffe, Brockenhurst and Swanage but we can travel to your home to provide inheritance tax advice in Bournemouth, Poole, Christchurch, Lymington and the New Forest and throughout Hampshire Dorset and Wiltshire.
Isn't inheritance tax just a tax for the rich?
It used to be, but not any longer. Soaring house prices in recent years has meant many more of us will be affected by inheritance tax. When you also include the value of your other belongings such as your car, jewellery, furniture and so on, it’s easy to see you could be worth much more than you think.Whose problem is it?
Although inheritance tax won’t affect you personally, it could be an extra burden for your loved ones when they are grieving. And do you really want to see up to 40% of the wealth you have worked hard to create in your life going to the government as inheritance tax after your death?The executors (or legal personal representatives) of your estate are responsible for arranging payment of the inheritance tax. If you’ve chosen members of your family for this task this could mean even greater stress for them at a difficult time.
Can I do anything to help reduce inheritance tax?
Yes the good news is that there are solutions available.Wills
You may be surprised to learn that you can write your Will in a way that could reduce inheritance tax. By leaving your estate to your beneficiaries in the right amounts, you could protect them from the headaches associated with having to pay an inheritance tax bill.If you’re married (or you and your same sex partner are registered as civil partners from 5 December 2005), the trick is to make good use of the nil rate band whilst you and your spouse are still alive. It may seem sensible to leave your estate to your spouse because no inheritance tax is payable on assets left to your husband or wife. However, you could just be delaying the inheritance tax problem, or even making it worse.
From 9th October 2007, it has been possible for spouses and civil partners to transfer their nil-rate inheritance tax band allowances so 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 individual’s surviving spouse or civil partner for use on their death.
Trusts
Trusts are a way of getting assets out of your estate but still having some control over what happens to them if you are a trustee. The two main benefits of putting money into Trust are:- These assets may not be included in any inheritance tax calculations
- Money held in trust can go straight to the beneficiaries after your death as they won’t be held up by Probate (or Confirmation).
Discounted Gift Trusts
A discounted gift plan is designed for customers who want to gift money to a trust as part of their inheritance tax planning strategy, while retaining a right to future set payments from that trust which are often called "income".The role of the discount is only relevant if the customer dies within the first seven years of creating the plan. In that case, the amount added back into their estate for inheritance tax purposes might be less than the original cheque they wrote, hence the name "discount", which can reduce inheritance tax. The value of the discount depends on the age, health and sex of the customer as well as the level of withdrawals selected.
The discounted gift trust may be suitable for:
- Those who have surplus capital which they are certain that they will never require in the future, but from which they do need to obtain regular withdrawals.
- Individuals who are confident that they are likely to live at least 7 years.
Why include a discretionary trust in your will?
Previously, well advised couples might have included a discretionary trust in their will to utilise the inheritance tax nil rate band on the first death rather than wasting it by passing assets to the surviving spouse under the spouse exemption. Although any unused nil rate band can now be transferred to the surviving spouse or civil partner, there are still circumstances where this type of planning remains beneficial.These circumstance include:
- complex succession plans, particularly where there is a second marriage and/or step children
- estates containing assets where the value is expected to grow faster than the anticipated future increases in the nil rate band allowance
- estates containing assets eligible for business property relief or agricultural property relief.
What is a discretionary trust?
A discretionary trust is a very flexible type of trust. The trustees of the trust own the trust’s property on behalf of the beneficiaries. The beneficiaries need not all even be born at the time the trust is created.The trustees can pay out income or capital to any one or more of the beneficiaries entirely at their own discretion. No beneficiary has a right to demand income from a discretionary trust.
Inheritance Tax Relief Portfolios
A number of AIM Portfolio investments have been introduced to take advantage of the Business Property Relief (BPR) available on shares listed on the Alternative Investment Market (AIM). Full exemption from inheritance tax on the capital invested is achieved after the shares have been held for 2 years.Business Property Relief (BPR) was introduced in the 1976 Finance Act and amended in subsequent years. The 1996 Finance Act amended the provisions making it significantly more attractive to private investors who are concerned about potential inheritance tax liabilities. Under the amended rules any qualifying investments held for two years or more at the date of death will benefit from 100% business property relief, i.e. their value will effectively be disregarded for inheritance tax purposes.
How can we help?
These are just some of the ways of mitigating Inheritance Tax and Inshore IFA can help you find a suitable solution to your inheritance tax problem, taking into account your current and future needs. This is a highly specialised area of planning and should not be entered into without financial advice.The Financial Services Authority does not regulate tax advice, trust advice or will writing services.