The threshold for Inheritance Tax (IHT) has risen in recent years to £325,000 for individuals and – with the option now to transfer any unused threshold to a spouse or civil partner – a total of £650,000 for legally joined couples (for the tax year 2012/13) . The relative level of house prices, however, particularly in the South East, means IHT is still a concern for many homeowners. It is therefore sensible to take some time to consider in advance the potential liability you may be leaving behind.
Before you look to offset it, however, it is important to establish what will accumulate as a potential liability. For most, the key contributor to their estate will be the value of their home and, even if this lies below the threshold, other elements can push an estate over the limit. For example, although people typically talk of the benefits of ISA investing – which shelters investors from capital gains and income tax – ISAs are not sheltered from IHT.
The problem with IHT is not only the fact it has to be paid, but also that it becomes due relatively quickly – generally within six months . When your home and certain other volatile assets are involved, there is a provision that allows your beneficiaries to pay their liability through instalments whilst the home is sold. However, this means that, whilst waiting for that sale, other heirlooms could be compromised as, without prudent planning, some might have to be sold to meet the bills.
Nevertheless, there is action you can take , particularly if your liability is relatively small. Few people realise that they have an annual exempted amount that they can gift to someone. At £3,000 per year, this could go some way to reducing the overall estate. Gifts for weddings, from parents, grandparents and even friends, are also exempt (subject to varying maximum amounts) and there are other useful tools such as loan trusts and discounted gift schemes.
As the Government looks to close potential tax loopholes it is always worth getting advice on what can and cannot be done to ease potential IHT burdens. In the end, it may help your family preserve some of its most valued possessions, sentimental or otherwise.
Levels & bases of reliefs from taxation are subject to change. The FSA does not regulate some forms of IHT planning.
JANUARY 2013
Important Note: Material within this article has been complied with the help of the Marketing Hub which is part of Marketing In Practice Ltd on behalf of your professional financial adviser. The contents of this document do not constitute advice and should not be taken as a recommendation to purchase or invest in any financial product. The value of a market investment can go down as well as up and you may not get back the full amount, particularly in the short term. Before taking any decisions, we suggest you seek advice from a chartered financial planner.
