INHERITANCE TAX

HOW YOU COULD SAVE UP TO £114,000 Many people feel inheritance tax will never affect them since it is only payable on any assets over £285,000. Rising property values in recent years now, however, mean that more and more people may have an inheritance tax problem. It seems unfair that people are taxed on their income during their lifetime and are then taxed, at 40%, on any assets (including their home) above this £285,000. Many people's affairs are, however, arranged such that it is the Government that gets the most benefit, not their own children. The most common arrangement for a husband and wife is for their Wills to leave everything to each other on the first death, with everything passing to their children on the second death.The Inland Revenue would get £86,000 from a couple with assets of £500,000 in such a situation. Their children would of course get £86,000 less. There are two ways in which such a couple can ensure their children get this £86,000. They could, instead of leaving everything to one another, leave everything to their children. However the surviving spouse would, no doubt, want to continue living in the matrimonal home; they may need the income from the other half to live; they could fall out with one of the children: one of the children may die first - there are a number of possible scenarios that could cause difficulties. These difficulties could be overcome by, instead of leaving everything to one's spouse or children, leaving everything to a trust. The surviving spouse is able to benefit from the assets in the trust but, because the assets belong to the trust, they do not form part of their estate and do not come into their inheritance tax calculations. The inheritance tax liability would be reduced from £86,000 to £0. We accept that everyone's circumstances are different. However, many people are now in a similar position and the Inland Revenue will benefit greatly, at the expense of their children, when they pass to the next world. Death is a difficult subject to think about and, because of this, many people don't plan properly. The above example illustrated how it is possible to save inheritance tax of £86,000 although the maximum saving that could be made in that way is actually £114,000 It may not be you who is affected by this (yet!) but may be your parent or other relative. If you would like us to look at this area, to advise you on how you could be affected and to look at ways in which any tax charge could be minimized the please contact Stephen Kendrew  for an initial consultation.