Fri, 07 Jul 06
Few people will have missed the news that Lord Linley and his sister Lady Sarah Chatto have been forced to sell precious jewellery belonging to their mother, Princess Margaret, to cover a £3 million inheritance tax bill.
This and other high-profile asset sales recently reported may lead people to think that inheritance tax is just a problem for the rich, but that is certainly not the case according to Anne Elliott, partner at Darlington law firm Latimer Hinks.
Astoundingly, one in three UK homeowners will have inheritance tax charged to their estates following their deaths. A recent survey for Scottish Widows showed that 8.2 million people have assets worth more than the current £285,000 threshold for Inheritance Tax. Although this is due to rise to £325,000 over the next four years, campaigners against the controversial tax are calling for its abolition. But, with the government expected to earn a massive £3.4 billion from inheritance tax this year, the Chancellor is unlikely to listen to these calls.
Anne Elliott said: "In Britain, because the value of houses has increased, ordinary families have been sucked into inheritance tax."
"It used to be a tax payable by the very wealthy but can now affect anybody. The good news, however, is that IHT is one of the most avoidable forms of taxes. Indeed, a good tax planning adviser will be able to ensure that clients eradicate, limit or at the very least defer their family’s exposure to IHT."
"If people take timely tax planning advice, particularly and specifically when writing a will, they can cash in on simple, but effective, ways of protecting their nearest and dearest from the ravages of IHT and the possibility of having to sell the family silver."
Anne’s advice on how to cut down on IHT bills include:
- Make exempt lifetime gifts if you can afford to. These will reduce your estate on death. £3,000 a year can be gifted and if the exemption is not used one year it can be carried forward to the following year.
- Make a will. If you die without a will there are strict rules as to who will inherit your estate.
- Skip a generation in your will. If assets are left to the grandchildren rather than the children, Inheritance Tax can be avoided. A legacy can be tied up in a trust until the grandchildren reach a suitable age.
- For a same sex couple consider entering into a civil partnership.
- Leave assets – possibly a share of the main residence – into a trust on first death rather than directly to a spouse.
- Consider taking out a life policy which will pay out when you die. The aim will be to have enough to pay any IHT bill, this must be put into trust to make sure the bill isn’t increased.
- Take professional advice. The last Budget made IHT planning and trusts even more complex.
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