Opinion: Simple planning could help save money on Inheritance Tax
- Credit: Getty Images/iStockphoto
Our French holiday cancelled, my wife and I have, in the words of one colleague, been ‘gallivanting around the UK’ instead.
I’m delighted to report that a good time has been had by all in the process as we’ve visited, among others, York, North Wales and London, enjoying glorious weather almost everywhere.
We particularly liked York, a city we hadn’t visited for many years, staying in a small, centrally-located apartment. ‘Well appointed’ would be the most appropriate phrase to describe the accommodation, which also housed a small framed print in the living room, the content of which demanded attention.
It read: “Life: Available for a limited time only. Limit one per person. Subject to change without notice. Provided ‘as is’ and without any warranties. Non-transferable and is the sole responsibility of the recipient. May incur damages arising from use or misuse. Additional parts sold separately. Mileage may vary. Subject to all applicable fees and taxes. Terms and conditions apply. Other conditions apply.”
I photographed the print and sent it to a close relative who has been recovering from an ailment that could have killed him last year, a setback that resulted in him adopting a new-found attitude towards life.
He recognises that he’s been given another chance, an opportunity to review how he lived life and perhaps enjoy things a little more. Above all, he recognised that, when it comes to money and wealth, “you can’t take it with you.”
Prior to last autumn, he hadn’t written a will, nor done anything to reduce his Inheritance Tax (IHT) liability, even though both are among the simplest measures we can take to protect our families should the unexpected happen. Nowadays, you can’t stop him telling everyone he meets that they must get such matters sorted without delay. He’s become evangelical.
- 1 Bomb scare was a 'hoax' say police
- 2 Villagers team up to honour 'a real character'
- 3 Sex offender caught with 76 of most serious child abuse photos
- 4 Body found in Wisbech road
- 5 Jail for paedophile who booked hotel to abuse three children
- 6 Turners ‘massively impacted’ and Knowles up pay to hire HGV drivers
- 7 Community group to review case of missing Terry McSpadden
- 8 ‘Enough is enough’ says MP at the scene of drink drive crash
- 9 Hunt is on to find stags that escaped from farm
- 10 100mph, 20-minute police pursuit ends with a crash – and later with jail
For years, voters have been led to believe that the IHT threshold would increase to £1 million, although it’s been frozen at £325,000 for more than a decade, which means that the threshold has effectively been lowered because it’s not index-linked.
Little wonder that the Office for Budget Responsibility estimates that more than 10% of adults are currently liable to pay IHT. Yet it is possible to save enormous sums of money by some simple planning.
For people who work and own assets such as homes, the value of their estates continues to grow, albeit slowly, so it’s difficult to calculate anything other than a snapshot of IHT liability. However, this does not mean it’s an exercise to be avoided – bear in mind that IHT is an additional tax on money which has already been taxed, enough motivation, surely, to ensure the state doesn’t take another undeserved slice when we shuffle off this mortal coil.
Perhaps the easiest way for married couples to reduce their individual IHT liability is to ensure that the first person to die leaves their entire estate to their spouse. This effectively doubles the IHT threshold to £650,000. Everything above this amount is taxed at a punitive 40%.
Alternatively, couples with children may prefer to combine saving IHT with helping their offspring, arranging to ‘gift’ them some of their money and assets.
One of the simplest ways of reducing IHT liability is to hand over assets or cash to your children, although this is not everyone’s cup of tea. Many parents are wary of increasing divorce rates and instances of former sons-in-law or daughters-in-law being awarded property formerly considered to be a family asset are not uncommon.
However, it’s possible for a couple (or an individual) to appoint themselves as trustees, allowing them to retain control of their assets until they decide the time has arrived to distribute them.
The benefits of such an arrangement are twofold. Firstly, IHT liability is reduced – indeed, after seven years, large gifts are generally IHT-free. Second, control of the trust is retained within the family, offering peace of mind for many folks.
Returning from London earlier this week, the relative in question and I played golf for the first time since his recovery began. He’s a changed man – he stops and smells the flowers; he and his wife have made a will, created a trust to mitigate future IHT liability and are preparing for a staycation of their own next month.
He’s still a bandit on the golf course though. No change there.