Archive for the ‘Inheritance Tax’ Category
Friday, August 15th, 2008
Despite the current property woes, an inexorable rise in house prices over the last twenty years or so has good and bad effects for all of us. One of the good effects is the ability of people to accumulate tax free capital for themselves and their family. Elderly couples then often release this capital in their latter years by “trading down” or even contracting into one of the increasingly popular equity release schemes on the market. So many older people in our society see the benefit of previous house price rises.
At the other end of the scale first time buyers particularly in the cities where prices are high are finding it more and more difficult to get into the house market at all. To help youngsters into the market many parents and grandparents are putting up deposits sometimes of substantial sums and guaranteeing mortgages to help their children or grandchildren into the market for the first time. This is a great help for the youngsters, giving them the opportunity to own a first home.
However many parents or grandparents who put up the money are not themselves wealthy, they may have remortgaged their own property to get the funds, and may even be in the position where they may need the funds themselves at a later date. In these situations it is not enough to rely on the youngsters word ‘I’ll pay you back when I’m better off”. Yet many families do rely on such promises - sometimes with disastrous consequences.
The simple fact is that if the house is in the youngsters name alone the deposit is at risk to other creditors if the youngster runs into difficulties with debt. Someone may fall ill, lose his or her job, have no redundancy insurance, a few credit card debts and before you know it the house is repossessed and the deposit grabbed by creditors. The promise of repayment is a bit hollow in these circumstances.
Yet all this can be avoided by some sensible legal steps being taken within the family at the time of purchase. Let’s imagine Mr A lends his granddaughter child B £25,000 on a house purchase of £100,000. A simple contract between A and B can be drawn up, where on any future sale Mr A gets his £25,000 back plus a quarter of the increase in price. If the house sells for say £140,000 in a few years grandfather A would get back (approx not counting fees etc) £10,000 being his share of the gain plus his original £25,000 = £35,000. Granddaughter B would still have released to her £35,000 towards her next purchase.
Moreover that contract can be backed up by a Standard security or mortgage deed over the property ensuring that in the event of any forced sale by granddaughter B’s creditors grandfather A gets his money back first, before any other creditor other than the daughter’s mortgage company.
These contracts and securities can have lots of other issues dealt with if the parties want such as payment of interest. Fees are relatively modest for the peace of mind which such arrangements can give. The principles are clear. We encourage families to take a commercial view of their arrangements and to put in place these protections where monies are changing hands but parents and grandparents want a little protection.
Should the reader wish to investigate these plans please contact Graham Irvine or Carmen McIver on 01506 815900.
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Thursday, November 29th, 2007
Inheritance tax (IHT) bills can be met through the “simple and reliable” use of a whole-of-life insurance policy, reports the Telegraph.
The publication explains that in the case of civil partners or married couples, such a policy is taken out on a “joint life, second death” basis, where the payout provides a way to deal with the costs of IHT.
In order to ensure that couples benefit fully, the policy should be placed in trust and a will needs to be drawn up detailing the arrangement.
There are a number of types of whole-of-life policy and it may be advisable for those concerned with such issues to seek legal advice before making any investments to ensure that they are aware of all possible ramifications.
Following proposals by the Conservative party to raise the IHT limit to £1 million, the chancellor of the exchequer, Alistair Darling, announced an increase in the nil rate band for couples to £600,000 in his pre-Budget report.
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Wednesday, November 28th, 2007
Consumers should seek advice on inheritance tax (IHT) before investing in property abroad, a firm of independent financial advisers (IFA) stated in recent days.
Alex Pegley, director at Calculis, explained that tax is constructed in a different way overseas, a fact that potential buyers should take into consideration before a purchase.
“They should get a feeling for what the IHT situation is in the country they’re buying in. With the UK situation, talk to a UK IFA or an accountant. But abroad, they really need to talk to the person in the country they’re buying in,” he said.
Mr Pegley concluded that the only way to avoid UK IHT is to become non-domiciled, which he said is a drawn out, complicated and “night on impossible” process.
Following proposals by the Conservatives to raise the IHT band to £1 million, chancellor of the exchequer Alistair Darling announced an increase in the allowance for couples to £600,000.
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Friday, November 23rd, 2007
HM Revenue & Customs (HMRC) considers withdrawals taken from alternatively secured pensions (ASP) or unsecured pensions (USP) as income for inheritance tax (IHT) purposes, it has announced.
As such, consumers who have excess income from USP or ASP that they do not spend can give it away without incurring any IHT charges.
Head of tax and financial planning at financial firm Skandia Colin Jelley commented: “Where HMRC practice has not generally been known, we welcome the introduction of greater clarity.
“Advisers can now be clear on exactly where their clients in USP or ASP stand, and therefore make plans accordingly.”
Consequently, a gift is exempt from IHT if it was made as part of the normal expenditure of the individual making the transaction, if it was made out of income and after allowing for all such gifts which are made out of normal spending, the giver if left with enough to maintain their usual standard of living.
For the tax year 2007-08, the IHT nil rate band stands at £300,000.
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Monday, November 19th, 2007
The estate of a spinster who died at the age of 107 earlier this year paid more than £2 million in inheritance tax (IHT), it has emerged.
Louise Jane Robertson passed away in May, but the extent of her wealth has only recently been revealed.
Totalling £7,210,633.57, Ms Robertson’s estate was subject to a total of £2.4 million in IHT.
According to the Daily Record, included in the legacy was cash, investments and shares worth £6 million, her home worth around £750,000 as well as £40,000 in furniture and jewellery.
Charities that benefited from large donations from Ms Robertson included the National Trust for Scotland, the Royal Scottish National Orchestra and Marie Curie Cancer Care.
At present, IHT applies to the taxable value of an individual’s estate that is more than £300,000 (2007-2008 tax year) and is payable at 40 per cent, those wishing to learn how to avoid or reduce IHT payments may wish to seek legal advice on the matter.
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Tuesday, October 23rd, 2007
It is surprising that the escalating cost of stamp duty was not examined in chancellor Alistair Darling’s pre-Budget report.
Such is the opinion of Stroud & Swindon Building Society, which states that it is particularly shocked since the inheritance tax (IHT) threshold was raised in response to rises in property prices.
The firm reports that the average amount of stamp duty paid on a home in the UK has increased at some five times the rate of average salaries, according to IFAonline.co.uk.
Paul Chafer, sales and marketing director at the firm, comments that nil-rate threshold for stamp duty should be raised from its current figure of £125,000 to something closer to current house prices, such as £200,000.
"We call on the government to raise the stamp duty threshold in order to take into account the astronomical house price growth that has occurred over the past decade," he adds.
Stamp duty land tax is currently payable at one per cent for any property purchased for more than £125,000 up to four per cent for a property purchased for more than £500,001.
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Monday, October 22nd, 2007
The wealthy may benefit from planning for inheritance tax (IHT), it has been stated.
Since the nil-rate band for IHT for civil partners and married couples was raised to £600,000, fewer people may find that they have to make substantial provisions for dealing with IHT for the time being, said Nick Hughes of accountancy practice BDO Stoy Hayward.
However, he told the Guardian that wealthier individuals may find that they can benefit from seeking legal advice and setting up trusts.
Couples with assets that are increasing in value at a rate faster than inflation may find they are more financially secure if they set up trusts.
The publication also notes that married couples can create lifetime versions of nil-rate band trusts, putting in assets equal in value to the current IHT allowance - £300,000 every seven years - but states that good professional advice is needed.
In his pre-Budget report, chancellor of the exchequer Alistair Darling announced that the threshold for IHT will increase to £700,000 by 2010.
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Friday, October 12th, 2007
As many as a million couples may have to rewrite their wills due to changes in inheritance tax (IHT) laws made by Alistair Darling, it has been reported.
Couples who have written wills that set up a trust fund in order to avoid paying the tax may have to redraft the legal documents as the chancellor’s decision to double the IHT threshold for couples supersedes such provisions, according to the Daily Telegraph.
Mike Warburton, tax partner at chartered accountancy firm Grant Thornton, told the publication that he thought there will be "hundreds of thousands" of people who may have to rewrite their wills to take the IHT changes into account.
"They will have to go to their lawyers to sort it out," he said.
In his pre-Budget report earlier this week, chancellor Alistair Darling announced that the IHT nil rate band for couples will be doubled from its current level of £300,000, meaning that couples are able to pass on £600,000 worth of assets to beneficiaries without being taxed.
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Thursday, October 11th, 2007
Rules on inheritance tax (IHT) are of huge benefit for married couples - especially when taking into consideration Alistair Darling’s pre-Budget report earlier this week - it has been asserted.
A firm of independent financial advisers (IFA) has stated that while married couples could already use will trust planning to let a surviving spouse inherit the nil rate band from their husband or wife with regard to IHT, the government’s announcement means that such couples no longer have to actively do this.
Financial consultant with Best Advice Financial Planning Kelvin Lillywhite asserted that other benefits included ‘bed and spousing’ available on capital gains tax - meaning that individuals can transfer assets to their partner without liability to capital gains tax.
In the 2007 pre-Budget report and Comprehensive Spending Review, chancellor Alistair Darling stated that if a person’s tax-free allowance is not used on their death, it can be transferred to their surviving civil partner or spouse so that they can benefit from double the tax-free allowance.
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Wednesday, October 10th, 2007
Chancellor of the exchequer Alistair Darling has elaborated on the inheritance tax (IHT) policy announced in yesterday’s pre-Budget report.
Speaking on BBC radio 4’s ‘Today’ show, Mr Darling said that he believed it was right for couples to be able to benefit from one another’s allowances so that in the event of someone’s death, the widower or widow can use both allowances and reduce the amount of tax would otherwise have to pay.
The chancellor added that the Conservative policy regarding IHT - which would accrue funds from non-domiciled individuals - would be unable to raise the £3.5 billion that shadow chancellor George Osborne said it would.
"What we have tried to do on all taxes is to make sure they are fair and we have a balanced approach," he added.
In the pre-Budget report, Mr Darling announced the increase of the IHT threshold for couples to £600,000.
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