Act now to avoid inheritance tax pain
Despite the misleading headlines that you often see in the media, inheritance tax still deserves to be known by its somewhat controversial nickname, the voluntary tax.
That’s because just a little bit of carefully considered forward planning is all you need to reduce your tax burden and pass on more of your estate to your loved ones.
There is no reason why you cannot limit your liability and reduce the overall tax burden that your family would have to face if things were left to chance.
Crucially, you must make sure that your Wills are up to date. That’s because any Will written before 2007 is probably not optimised to take advantage of the current tax laws as they stand.
Here’s how it works:In the UK there is currently a £325,000 tax-free threshold for each individual.
But if you’re married then there is no Inheritance tax between spouses. This means that a widow, or widower, can claim their deceased spouses allowance as long as they inherited everything from their spouse.
This could still be the case even if you outlive your partner by 20 years or more.
Gordon Brown made a big change to Inheritance Tax law in October 2007. Prior to that, married couples could not benefit from more than one allowance, so they had to have Wills prepared especially, using what was known as a Nill Rate Band Discretionary Trust.
As the rules are now different, it is very important that spouses – if appropriate – leave everything to their partner so that the partner can benefit from a 100% extra allowance.
This is why any Will made prior to 2007 should be reviewed professionally if Inheritance Tax is an issue.If, however, you don’t want to leave everything to your spouse, then it is imperative that you use a trust to minimise Inheritance Tax and take advice from a legal professional.
For our clients in the South East this is a crucial issue. With the average house price in Greater London now £487,000, not planning carefully for Inheritance Tax would see an immediate tax liability of £65,000.
And with George Osbourne announcing that Inheritance Tax is set to be frozen until 2019, and property prices still increasing year on year in spite of the terrible economy, you can expect that burden to increase year on year for the foreseeable future.