07 February 2012

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Thousands of tenants live in council houses even though they earn more than ?100,000

There are 15,000 tenants in social housing even though they have household incomes of more than ?80,000 – with 6,000 earning more than ?100,000.

Inheritance Tax Planning in Teesside & throughout North East

What is Inheritance Tax?

Inheritance Tax is the tax levied by the government on your estate when you die. Essentially it is a very simple tax – a charge of 40% is made on the net value of everything that you own above a designated threshold which is called the Nil Rate Band (commonly referred to as the NRB).

It is levied on the net value of everything that you own, including your main residence, any second property , any cash savings and investments you may have, cars, boats, personal effects (jewellery for example) and even the value of your life assurance policies.

inheritence

Currently the Nil Rate Band (NRB) threshold for 2011/2012 is £325,000. And it is not just a tax on the very wealthy. Recent rises in property values and increased personal wealth mean that many more people own assets which are (or will be) valued well above the NRB threshold. So without IHT planning your family could be faced with a very large tax liability when you die, meaning that they will not benefit as much as they should from your estate - but the government will!

It is now possible to transfer unused nil-rate band allowances between spouses or civil partners. For individuals who die on or after 9 October 2007 a claim may be made to utilise any unused nil rate band from their deceased spouse or civil partner's estate.

The amount of the nil rate-band potentially available for transfer will be based on the proportion of the nil-rate band unused when the first spouse or civil partner died. If on the first death the chargeable estate is £156,000 and the nil-rate band is £312,000, then 50% of the original nil-rate band is unused. If the nil rate band when the surviving spouse dies is £350,000, then that would be increased by 50% to £525,000.

All lifetime transfers not covered by exemptions and made within seven years of death will be added back into the estate for the purpose of calculating the tax payable. This may then be reduced by taper relief.

Charge on Gifts Within 7 Years of Death
Years before death	0-3	3-4	4-5	5-6	6-7
Tax reduced by	0%	20%	40%	60%	80%

Main Reliefs
Business property:
business or interest therein	100%
qualifying shareholders in unquoted* companies	100%
land, buildings, machinery, or plant used by transferor's controlled company or partnership	50%
Agricultural property	50% or 100%
*Unquoted companies include those listed on AIM

Main Exemptions

Most transfers between spouses and civil partners.
The first £3,000 of lifetime transfers in any tax year plus any unused balance from previous year.
Gifts of up to but not exceeding £250p.a. to any number of persons.
Gifts in consideration of marriage or civil partnership: up to £5,000 by a parent, up to £2,500 by a grandparent, or up to £1,000 by any other person.
Gifts made out of income that form part of normal expenditure and do not reduce the standard of living.
Gifts to charities, whether made during lifetime or on death.
Gifts to political parties

How much Inheritance Tax might my family have to pay?

Assuming that you did nothing at all to reduce your Inheritance Tax liability, this table shows exactly what your family’s liability might be:

Estate Value	Amount Taxable *	IHT payable at 40%
£300,000	0	0
£400,000	£75,000	£30,000
£500,000	£175,000	£70,000
£600,000	£275,000	£110,000
£700,000	£375,000	£150,000
£800,000	£475,000	£190,000
£900,000	£575,000	£230,000
£1,000,000	£675,000	£270,000

* Based upon 2011/2012 tax year Nil Rate Band

But with sound financial advice, careful planning and making full use of the IHT Allowances and Exemptions, your liability can be significantly reduced, all perfectly legally, through reducing the value of your estate over a number of years.

Typical approaches to reducing IHT liability are:

The efficient use of Trusts
Ensuring assets are individually owned by family members up to the NRB threshold
Putting a suitable Will in place
Making full use of all Allowances and Exemptions
The giving of Assets as gifts (often called Gifted Assets)
The use of IHT efficient investments

It is very important to consider planning well ahead, while you are still in good health. For example, Gifted Assets retain a (reducing) liability over seven years from the date of the transfer.

If you would like to speak to an adviser about reducing your IHT liability and to arrange a no obligation consulation, please do not hesitate to contact us.

Remember, the worst thing you can do is nothing – the government will benefit from your estate rather than your loved ones!

Email: enquiries@activefinancialservices.co.uk Phone: 0845 555 0 888

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