Inheritance Tax and Estate Planning - Clan Financial Services

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Inheritance Tax and Estate Planning




"In this world nothing can be said to be certain, except death and taxes."


Inheritance tax (IHT) is a tax on your estate - the things that belong to you - when you die and is also sometimes payable on trusts or gifts made during your lifetime. This includes the total of everything you own and a share of anything you own jointly.

With a little planning you may be able to reduce the bill or avoid IHT altogether. Things that might count towards your estate include:

• Property
• Investments
• Insurance
• Payment from a pension plan or employee death benefit (unless in a trust)
• Other assets, for example, cars, art, jewellery, furniture
• Gifts you have made but still benefit from, for example, a house you have given away but still live in
• Certain gifts that you have made in the last seven years
• Assets held in trust from which you receive personal benefit

If you own assets jointly, your share of their value is included in your estate.

How much can I leave before inheritance tax affects my family?

For the 2012/13 tax year, no tax is charged on the value of your estate up to £325,000. This is also known as the 'nil rate band' and everything above that is taxed at 40%.

If an individual's inheritance tax nil rate band is not used up on their death, the unused proportion can be transferred to their surviving spouse or civil partner.

Assets passed between spouses or civil partners are exempt from IHT (assuming the spouse or partner is domiciled in the UK), regardless of their worth and how soon you die after making them. These rules also apply to gifts made to charities.

Additionally, any amount of money you give away outright will not be counted for IHT if you survive for seven years after making the gift. If you die within this period, the amount of the gift will be included within your estate. Taper relief may apply in these circumstances and can reduce the amount of inheritance tax due.

Bear in mind tax laws are subject to change, possibly retrospectively. Also, the rules for individuals who are not UK resident or not UK domiciled are different and therefore tax and local laws should be considered by a potential investor.

How can I plan for inheritance tax?

There are a number of things you can do to reduce your family's tax bill, including:

• Make a will - an effective will could help to reduce your inheritance tax bill.
• Look into exemptions - there are a number of exemptions you can use to reduce the value of your estate. For example, moving assets between spouses or civil partners does not create a tax liability. If you leave 10% or more of your estate to charity your IHT bill will also be reduced.
• Consider gifts - if you can afford to give away some of the assets you own, it may be possible to reduce the size of your estate.
• Think about life assurance - a life assurance plan won't actually lessen the inheritance tax bill but the proceeds could be used to help pay the bill on death.
• Consider trusts - if structured carefully, trusts can help to reduce or even eliminate your inheritance tax liability.

The above is based on our understanding, as at March 2012, of current taxation, legislation and HM Revenue & Customs practice, all of which are subject to change without notice. The impact of taxation (and any tax relief) depends on individual circumstances.

If you are interested in finding out more about Inheritance Tax and Estate Planning, complete the form below and we'll contact you at a convenient time to discuss your requirements.