The new rules announced on 9th October 2007 by Alistair Darling allow couples to combine their inheritance tax allowances. Yet it has always been possible for couples to do this providing they had the right wills in place. There are estimates that this reform is going to cost the Government up to £1 billion in lost revenues.
Isn’t it a scandal that prior to pressure arising from recent opinion polls, the Government was happy to collect this much tax from that section of the population that was ill-informed and poorly advised, whilst others with equal wealth could quite legitimately avoid paying up to £120,000 (£300,000 at 40%) in tax.
The chancellor is to be applauded for applying this to widows and widowers (it would have been cruelly unfair not to). Those who have planned efficiently will be unaffected, but a widow with a £600,000 house and only a £300,000 exemption will save £120,000.
The inheritance tax threshold is to rise to £350,000 per person in April 2010, giving couples a combined allowance of £700,000.
What planning is available to those with estates worth in excess of the exemptions outlined above?
Give assets away
If you can afford to do it, you may give away assets, providing you survive seven years after the gift the gift is exempt. Be aware that giving away an asset rather than cash may well create a capital gain and a different kind of tax liability.
If you can afford it you can also make gifts out of income, and this is immediately exempt from inheritance tax.
Invest in Business Property
There are investments which are exempt from inheritance tax. These include investments in AIM listed companies, agricultural or business assets. A residential property used for holiday lettings may qualify as a business. Professional advice should be taken before investing.
Domicile
Those taking up residence abroad should be aware that non resident does not remove your estate from UK inheritance tax. To do this one would need to become non-domiciled, which is harder to achieve. It means severing ties with the UK, taking up permanent home in another country and demonstrating an intention to remain there.
Persons not born in the UK or those born in the UK but whose father was born elsewhere should take advice. They may not be UK domiciled, and many planning opportunities then are available.
Discounted Gift Plan
These products are offered by Life Insurance companies and are suited to those looking to:
* move some of the investment out of their estate immediately,
* receive fixed regular payments now with any remainder passing to their beneficiaries when they die.
The value of the estate is reduced from the start of the plan and if you survive seven years the investment is fully removed from the estate. You can receive a regular payment from the plan and then any remaining amount is paid to the beneficiaries on death.
The trust creates two separate rights:
* your right to regular payments of a specified amount out of the capital of the trust fund for life (or until the trust fund is exhausted).
* the trustee's right to whatever is left in the trust fund at the time of your death.
http://www.articledashboard.com/Article/Inheritance-Tax-Planning/323543
