Effective Inheritance Tax Planning
While you are thinking about savings, you might also consider how you intend to pass your wealth on, tax-efficiently, to other family members. There is a saying that it is nice to leave some money to your children, but even nicer to live to see them enjoy it. But it must be even better if you can keep your wealth out of the hands of the tax man!
Tax-efficient gift planning in your lifetime means you can take advantage of contributions from HM Revenue and Customs and enjoy seeing your money put to good use.
You can plan a strategy to make the most of inheritance tax (IHT) reliefs, including:
- gifts before 6 April 2006 of up to £250 per person, with a fresh allowance for 2006/07
- gifts of up to £3,000 before 6 April 2006 (add any unused exemption from 2004/05), with another £3,000 exempt from 6 April
- regular gifts out of income (e.g. insurance premiums or a schedule of gifts)
- gifts to charity
- gifts of a stake in the family business
- other substantial gifts, not covered by specific IHT exemptions, but not chargeable to IHT if you survive seven years from the date of gift.
If necessary, you can take out insurance to pay any IHT due should you die within seven years of making a substantial gift.
Review Your Will
l We recommend that, before 6 April, you review your Will to see that it does accurately reflect your wishes and the needs of your family, and discuss with us whether it is possible to improve its tax-efficiency.
One area where you might improve on the tax-efficiency of your Will is to include a nil-rate discretionary trust, or to make your Will discretionary.
The former can create an opportunity to save tax of up to £110,000 on the first death, while at the same time protecting your spouse or civil partner in the event that he/she needs all of your estate. The latter can mean that while you indicate how you want your estate divided, it remains for the executors to decide the final division at the time of your death, when they can take account of all circumstances. If you do not already have a shareholder or partnership agreement covering the point, you should also consider making provision for your business interests in the event that you die or become incapacitated before retirement.
Do you want to save £110,000 in tax?
Jim dies, leaving everything to his wife, Helen |
Jim dies, Will contains nil-rate discretionary trust in favour of Helen and children |
£1,000,000 estate |
£1,000,000 estate |
£1,000,000 passes to Helen |
£275,000 passes to children £275,000 passes to Helen |
£290,000 IHT on Helen’s death |
At the discretion of the trustees, the amount in trust can be paid to Helen £180,000 tax on Helen’s death |
£710,000 for the children |
£820,000 for the children |
