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Inheritance Tax Planning

Proper inheritance tax planning could save your family hundreds of thousands of pounds.

IHT

Not many people think about Inheritance Tax (IHT) in fact many people are not even aware that it exists. After all, it's not something that normally affects individuals whilst they are alive (unless they themselves receive an inheritance), and most of the people that are aware of it probably think that only old people or the really well off need to consider it.

But the fact is that this is not the case.

Recent research by Scottish Widows found that almost 1 in 4 households in the UK have an estate valued at more than the new £300,000 threshold for death duty.

With the UK average house price now above the £192,000* mark (*Halifax House Price Index - March 2007), many more people have fallen into the Inheritance Tax bracket without even realising it. Both these and even the people that are aware of it, usually do not understand the impact that it could have on their beneficiaries.

It now accounts for the greatest proportion of wasted tax in the UK**.

Britons Waste £1.5 billion in Inheritance Tax (Consumer)**

UK tax payers waste more on IHT payments than any other tax
Britons say the so called “death tax” is their second most resented tax
However, almost three in four people (74%) have not taken any steps to reduce their overall tax payments

UK taxpayers are wasting millions of pounds due to poor IHT planning according to annual research* by Unbiased.co.uk, the website promoting the benefits of independent financial advice. The research shows that the overall amount of inheritance tax payments totalled £3.5 billion last year, including £1.5 billion in avoidable payments. The amount of wasted IHT payments has risen by 19 per cent compared to the previous year, equalling an increase of over £250 million.

David Elms, Chief Executive of Unbiased.co.uk, commented; “Our research shows that people are throwing away a huge amount of money on unnecessary inheritance tax payments. IHT liability is paid by beneficiaries, often at a time when they are grieving over a lost friend or family member. Without advanced tax planning, increasing amounts of IHT will fall into the hands of the tax man. It is crucial that people see an independent financial adviser to discuss their tax liabilities remembering that it is legal to mitigate inheritance tax. An IFA will ensure that all advice provided is appropriate for their client’s personal and family financial situation.”

* TaxAction 2007 report produced for IFA Promotion by RAKM, based on a specially commissioned analysis of Inland Revenue and a range of other official data sources.

** Survey for IFA Promotion by YouGov, using a sample of 2610 people in February 2007.

We all work hard to build up capital and we want to make sure that our loved ones get as much of it as possible, and not the Taxman...or do we, maybe Lord Jenkins got it right when he said:

Inheritance Tax is a - "voluntary levy paid by those that distrust their heirs more than they dislike the Inland Revenue"

The survey says it is the second most resented tax, but the reality is that we as a nation appear to be glad to let HMRC get a large proportion of our wealth.

We at Ashton Hoyle Independent Financial Advisers like to think that most people want to pass on as much wealth to their heirs, and nothing to the Taxman, whilst retaining as much flexibility as they can. We understand the importance of Inheritance Tax planning in order to ensure a brighter future for those left behind when you die.

With many solutions available, it is importance that you seek Independent Financial Advice, often in conjunction with an accountant and solicitor.

Whose wealth is it anyway?

Inheritance tax (IHT) is a tax collected by the Government on any transfer of assets to other people or trusts. It is commonly paid in respect of an individual's estate on death, but it can also be applied in respect of certain transfers of assets during life.

At present, IHT is payable at 40% on all of an individual's estate above a designated threshold - £300,000 (for 2007/08). You don't have to be overly wealthy to achieve this threshold. As mentined earlier, in today's property climate, your house alone may account for all of this figure.

By use of careful planning you can ensure that IHT is reduced or eliminated altogether - allowing your hard-earned wealth to be passed to your family without the taxman taking a large share (sometimes the largest individual share)!

Who is liable for inheritance tax?

It is a mistaken assumption that you need to be particularly wealthy to incur a substantial inheritance tax liability. When you die, the value of your taxable estate is calculated.

This is the total value of all your possessions and assets, less any outstnding liabilities, available exemptions and reliefs. If the taxable estate exceeds the nil rate tax band of £300,000 (for 2007/08), anything over that sum is taxed at 40%.

There is only one band of tax, and that is currently 40% (regardless of the recipients personal tax status).

What amount of tax would your beneficiaries be faced with?

Take a look below for an idea of what would be paid to HMRC:

Size of Estate	Taxable Amount	Tax Payable	Net Estate	% of estate lost on tax
£300,000	£0	£0	£300,000	0.00%
£325,000	£25,000	£10,000	£315,000	3.08
£350,000	£50,000	£20,000	£330,000	5.71
£375,000	£75,000	£30,000	£345,000	8.00
£400,000	£100,000	£40,000	£360,000	10.00
£425,000	£125,000	£50,000	£375,000	11.76
£450,000	£150,000	£60,000	£390,000	13.33
£475,000	£175,000	£70,000	£405,000	14.74
£500,000	£200,000	£80,000	£420,000	16.00
£525,000	£225,000	£90,000	£435,000	17.14
£550,000	£250,000	£100,000	£450,000	18.18
£575,000	£275,000	£110,000	£465,000	19.13
£600,000	£300,000	£120,000	£480,000	20.00
£625,000	£325,000	£130,000	£495,000	20.80
£650,000	£350,000	£140,000	£510,000	21.54
£675,000	£375,000	£150,000	£5,250	22.22
£700,000	£400,000	£160,000	£540,000	22.86
£725,000	£425,000	£170,000	£555,000	23.45
£750,000	£450,000	£180,000	£570,000	24.00
£775,000	£475,000	£190,000	£585,000	24.52
£800,000	£500,000	£200,000	£600,000	25.00
£825,000	£525,000	£210,000	£615,000	25.45
£850,000	£550,000	£220,000	£630,000	25.88
£875,000	£575,000	£230,000	£645,000	26.29
£900,000	£600,000	£240,000	£660,000	26.67
£925,000	£625,000	£250,000	£675,000	27.03
£950,000	£650,000	£260,000	£690,000	27.37
£975,000	£675,000	£270,000	£705,000	27.69
£1,000,000	£700,000	£280,000	£720,000	28.00
£1,250,000	£950,000	£380,000	£870,000	30.40
£1,500,000	£1,200,000	£480,000	£1,020,000	32.00
£1,750,000	£1,450,000	£580,000	£1,170,000	33.14
£2,000,000	£1,700,000	£680,000	£1,320,000	34.00
£2,500,000	£2,200,000	£880,000	£1,620,000	35.20
£3,000,000	£2,700,000	£1,080,000	£1,920,000	36.00
£3,500,000	£3,200,000	£1,280,000	£2,220,000	36.57
£4,000,000	£3,700,000	£1,480,000	£2,520,000	37.00
£4,500,000	£4,200,000	£1,680,000	£2,820,000	37.33
£5,000,000	£4,700,000	£1,880,000	£3,120,000	37.60

So do you trust HMRC more than your heirs?

If you would like to learn more about the effect of Inheritance Tax on your estate and what this could mean to your beneficiaries, then please contact Ashton Hoyle Independent Financial Advisers today, and one of our experienced tax advisers will be happy to assist.

Please note...the section on Business Property Relief (BPR) is currently being updated and will be available shortly.