IHT -THE VOLUNTARY TAX

What Is Inheritance Tax

How is it calculated?

How much tax will my estate pay?

Exemptions

Changes from the 22nd March 2006

How can I reduce the amount of potential Tax?

How Can Consilium Asset Management Help?

What is Inheritance Tax?

Inheritance Tax is the tax payable by your estate when you die. Over the last few years the number of estates that have paid IHT has increased substantially. For many people this has been due to the increase in property prices over the last few years. The current government has indicated that Inheritance Tax is here to stay. The likely hood is that more and more estates will have to pay this tax in the future.

However your estate might not necessarily have to pay as much Inheritance Tax as you might think. With careful planning and time it may be possible to reduce your estate’s potential Inheritance Tax bill.

How is it calculated?

For most people who are domiciled in the United Kingdom the tax is levied on their worldwide assets. A person's domicile is normally where they have permanent address and home and whilst away they would usually have the intention of returning to this address.

For people who are non UK domiciled usually only assets held in the UK are taxed.

Individuals who have been resident in the UK in 17 years out of the previous twenty are normally classed as UK domiciled for inheritance tax purposes.

The tax is calculated on the market value of the person’s total assets as at the date of death.

How much Tax will my estate pay?

Your estate will only have to pay IHT when the value exceeds the nil rate allowance.

Estates (including certain gifts made in the previous seven years) of less than £300,000 for tax year 2007/08 will not have to pay Inheritance Tax , however tax at a rate of 40% is levied on the balance over and above the nil rate allowance.

Exemptions

There are however exemptions that are available for each person to use.

• Annual gift exemption of £3000 per person


• Small gifts of up to £250


• Gifts that are made out of normal expenditure. These gifts should not reduce your standard of living and should be made on a regular basis.


• Transfer of assets between husband and wife


• Transfer of assets between civil partners


• Gifts in relation to marriage by parent £5,000


• Gifts in relation to marriage by a Grandparent £2,500


• Gifts to spouse, civil partners and charities are exempt.

Changes from the 22nd March 2006

On the 22nd March 2006 the Treasury altered the tax treatment of certain trusts established after this date.

Some trusts that were set up prior to this date may have also been affected by the changes and may need to be reviewed.

Despite changes made to the tax treatment of trusts it may still be possible to reduce your estates liability to Inheritance Tax.

The current government and the capital taxes office have, in addition to the recent changes, given an indication via press commentary relating their views on IHT planning. The interpretation is that Inheritance Tax is here to stay and the collection of this tax will be more rigorous with any perceived loopholes being closed.

How can I reduce the amount of potential tax payable?

There are ways you can try to reduce the amount of Inheritance Tax your estate might have to pay.

• Make sure you hold and distribute you assets in the most tax efficient way now


• Take Independent Financial Advice on how to reduce your estates liability to Inheritance Tax


• Ensure you have an up to date IHT effective will


• Take advice on how to gift assets and how to use the exemptions available

How can Consilium Asset Management help?

It is important that you seek professional advice with all forms of financial planning.

• As Independent Financial Advisers we will be able to


• Assess your estates current potential IHT liability.


• Review your current financial arrangements in light of changes made 22nd March 2006.


• Provide solutions to reduce the amount of tax payable.


• Provide the name of suitable legal practioners that will help you to review your Wills.


• Help you to pass more of your estate to your beneficiaries - not the tax man.

If you would like to discuss any aspect of Inheritance Tax Planning please contact us using our advice line or alternatively email us.

We can provide advice on a range of topics. To find our more look at our services page

Please note that tax planning or legal advice is not regulated by the Financial Services Authority.