Inheritance Tax Question
This article appeared in the Mearns Press in September 2006.
Question:
Answer:
Inheritance Tax is an issue which is affecting more and more people every year, as evidenced by the fact that the amount of Inheritance Tax collected by the government has almost doubled since 1998. Whilst those who find that they have to pay the tax are certainly paying more than ever before, there has also been an increase of around 50% in the last 5 years in the number of people that are liable to pay the tax. More than ever before, therefore, care should be taken if you are to make sure that Inheritance Tax is not charged needlessly on death and you are right to give this matter some attention sooner rather than later.
The Threshold
You do not mention how much your house or total estate is worth. The tax free threshold for Inheritance Tax is currently £285,000. If your total estate at death is likely to be worth less than this then no Inheritance Tax planning measures need be taken by you (although you should still make sure that your affairs are in order in all other respects) since no tax will be payable. If, however, your total estate is likely to be worth more then £285,000 (bearing in mind that the taxman values everything on death, including your house, house contents, bank accounts, life policy proceeds and so on), steps will need to be taken if you wish to ensure that your children don’t lose 40% of everything above the tax free sum.
Tax Efficient Wills
In most cases, particularly where the total estate at death falls between £285,000 and £570,000, all that needs to be done in order to eliminate the potential tax liability is to have tax efficient Wills prepared for you and your spouse. These Wills will ensure that the tax free sums for both you and your husband are used, thereby ensuring that tax will only be paid on any estate that you have above £570,000 (2 x £285,000 = £570,000). Even if the total value of your estate is likely to be above £570,000, tax efficient Wills should still be put in place and there are other measures that can be taken to minimise any remaining tax liability. Lack of space prevents me from covering these here.
In short, the time and expense incurred at this stage in preparing Tax Efficient Wills could save your family a small fortune later. It is normally money well spent, but if you are not minded to foot the bill, ask your family to pay it for you. It is they who will benefit from any changes that are made and it seems perfectly reasonable, therefore, to ask them to pay for that benefit.
Experience tells me, however, that it is often a lot easier to avoid Inheritance Tax than it is to get your children to pay for something that they don’t absolutely have to. Good luck.
Article complied by Tom Monteith
Posted by Sharon Clift on Oct 16, 2006
