Estate Planning Is Smart Thinking

Inheritance Tax (IHT) is relatively simple to understand it is the planning that is complicated. IHT is payable on a deceased’s estate on the surplus above £300,000. This threshold figure is known as the Nil Rate Band which stands at £300,000 for the 2007/2008 tax year and any assets above this amount are taxed at 40%.

For example, an estate, including home and possessions, of £1.6 million would attract an IHT bill of £520,000. If the deceased had two children, they would each receive £540,000, making Her Majesty’s Revenue and Customs (HMRC) virtually an equal beneficiary. Furthermore, HMRC will receive their bequest long before the intended beneficiaries.

It is with great joy that I inform you this need not happen. There are a number of IHT mitigation opportunities currently available. It may be possible to greatly reduce or even entirely eliminate your IHT liability without necessarily losing control of your money, giving it away, or leaving it prey to unintended beneficiaries.

Areas to examine

• How does your will read?
• Are life assurance and pension benefits tax efficient?
• Have nil rate band been utilised?
• Are you using your tax free allowances?
• What about Potentially Exempt Transfers (PETs) and Chargeable Lifetime Transfers (CLTs)?
• Education funding.
• Trusts.
• Solutions to immediately reduce your estate.
• Life assurance is a useful option.

Summary

This is indeed a rich area of financial planning in more ways than one. The array of solutions may seem endless but in fact may be summarised down to half a dozen or so. As always it is important to retain flexibility where possible and remain adaptable to change. Always ask how flexible the arrangements are to ensure they suit your needs. There is no one fix solution here, but rather it is a case of discounting all options to arrive at your most suitable solution(s).

The FSA does not regulate all aspects of IHT planning