Graysons Solicitors In The Press

Minimise your tax bill

Inheritance Tax is back in the news with the recent announcement that the Conservative party is considering abolishing it as part of its new taxation strategy. The tax, which is levied at 40%, is theoretically a tax on the wealthy and is currently payable on estates valued at over £300,000. However, with the recent explosion in house prices, many more people who would not consider themselves by any means wealthy have been brought into the trap of being potentially liable to pay the tax.

Many people find this particular tax hard to accept, they work most of their lives to pay off their mortgage, and believe that they should be free to pass on their property to their family without them having to pay tax on it.

David Coffey, partner at Graysons solicitors, is an expert on Inheritance Tax planning, “There are strategies available which can help to minimise your tax liability and potentially save your loved ones a lot of money.”

Here he outlines some of the options available:

• Anything you give away more than seven years before your death is exempt from Inheritance Tax. So if you’re healthy and likely to live longer than this you can start making gifts now. However, if you give something away and continue to use, for example giving your house to your children but continuing to live there, it this will still count as part of your estate as this is classed as a ‘gift with reservation of benefit’.

• You are allowed to make gifts up to £3,000 each tax year without it being liable for Inheritance Tax, even if you were to die shortly afterwards, and if you gave nothing away in the previous tax year you can bring it forward and give away £6,000 this year.

• If your child is getting married you can give them up to £5,000 as a wedding gift and up to £2,500 to a grandchild on their marriage.

• Gifts to charities are tax exempt.

The strategy which offers the opportunity of the biggest savings, currently up to £120,000, is available to married couples and involves the creation of special wills. Married couples have an exemption from Inheritance Tax for transfers of assets between themselves, and in addition to this each spouse is exempt from paying tax on the first £300,000 of their estate, called the ‘nil rate band’. By utilising both of these nil rate bands the couple can leave up to £600,000 worth of assets without being liable to pay Inheritance Tax.

It may be necessary for the married couple to change the ownership of their property to tenants in common, which means that each of them owns half of the property rather than them owning the whole property jointly. When the first person dies, their half of the estate, say £250,000, is given to other beneficiaries eg. their children, or is placed in a discretionary trust. This is less than the nil rate band exemption so there is no tax liability. With the appropriate planning the surviving spouse can continue to live in the house until they die when their half of the estate passes to the children, again with no tax liability. If a trust is involved the first parent’s £250,000 can be released from the trust at any time and the children will potentially inherit the whole £500,000 worth of assets without being liable to pay any tax whatsoever.

“Discretionary trust wills are a great opportunity for married couples with more than £300,000 worth of assets”, says David; however he emphasises the need for planning ahead. “Anyone who thinks they may be over the threshold for Inheritance Tax should seek specialist advice sooner rather than later. Most of the strategies available to minimise tax liability involve forward planning, and your family will thank you for it.”

David Coffey can be contacted at Graysons on 0800 048 0766 or via www.graysons.co.uk

Click here to read more information about Wills & Inheritance Tax