Despite the threshold rising to £650,000 for married couples and civil partners (£325,000 for individuals, tax year 2010/11), the boost in house prices over recent years means inheritance tax (IHT) is still a concern for many homeowners, particularly in the South East. It is therefore sensible to take some time to consider in advance the potential liability you may be leaving behind.
Before you look to offset it, however, it is important to sort out what will accumulate as a potential liability. For most the key contributor to their estate will be the value of their home but, even if this lies below the threshold, there are other elements that can push an estate over the limit. For example, while people typically talk of the benefits of ISA investing, although they shelter investors from capital gains and income tax, they do not shelter the value from IHT. Another example is that any property held abroad also goes towards the value of an estate. Both are therefore susceptible to inheritance tax.
The problem with this tax is not just the fact it has to be paid, but also that it has to be paid quickly – generally within 6 months. Passing on your home or other heirlooms intact could therefore be compromised as, without planning, some may need to be sold to meet that bill.
However, there are things you can do, particularly if your liability is relatively small. Few people realise that they have an annual exempted amount that they can gift to someone. At £3,000 per year this could go some way to reducing the overall estate. Gifts for weddings, from parents, grandparents and even friends, are also exempt (subject to varying maximum amounts) and there are other useful tools such as loan trusts and discounted gift schemes.
The new exemption on business assets is also an interesting development. As long as the assets are held for more than two years, they should be seen as IHT-free and this includes shares in the smaller companies stock market, AIM (although, do note that these stock can carry a high risk and should not be held purely tax for reasons). Added to this, there are partially-exempt trust structures.
As the Government looks to close any potential tax loopholes it is always worth getting advice on what can and cannot be done to ease potential IHT burdens. In the long run, it may help your family preserve some of your family’s most valued possessions, sentimental or otherwise.
Issued by Jane Smith Financial Planning Limited which is authorised and regulated by the Financial Services Authority.
The contents of this newsletter do not constitute advice and should not be taken as a recommendation to purchase or invest in any of the products mentioned. Before taking any decisions, we suggest you seek advice from a professional financial adviser.
