Inheritance Tax Avoidance & Tax Planning

Inheritance Tax does now affect a significant proportion of the population. Due to the increase in house prices over the last several years, many couples face payment to inheritance tax and do not even realise it. Careful forward planning, including taking certain legal steps, can help reduce the burden of inheritance tax thereby leaving greater sums of beneficiaries.

A key issue in mitigating the affects of inheritance tax is sensible forward planning. This is necessary well before the date of death. The use of discretionary trusts and other vehicles still can cut the amount paid by the estate to the tax man. The “estate” comprises everything owned by the deceased at the date of death including house, contents, cars, savings etc. Inheritance tax is therefore a voluntary tax but payable at 40% of the value of the estate over the IHT limit currently £300,000.

For example:

Mr. Careless and Miss Worriknot, an unmarried couple with children have assets worth £300,000 each. If they leave every thing to each other the outcome will look like this:

First death:
Whole £312,000 is taxable at 0%
Inheritance Tax payable £0

Second death:
First £312,000 is taxable at 0%
Next £312,000 is taxable at 40%
Inheritance tax Payable £124,800

If a little tax planning had been carried out the result could be quite different - If on first death the estate has passed to a discrectionary trust for the survivor and the children then the result would be

First death:
Whole £312,000 is taxable at 0%
Inheritance Tax payable £0

Second death:
First £312,000 is taxable at 0%
Inheritance Tax Payable £0

Trust then pays out to children
Inheritance Tax Payable £0

Tax saving to children £124,800

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