Inheritance Tax Planning

This article was written before the pre-Budget announcement on 9th October 2007 and does not take into account of the changes announced at that time. We will update this information once we have had the opportunity of considering the finer detail of the proposed changes.

It is a fact of life that more and more estates, year on year, are falling into the Inheritance Tax (IHT) bracket.

The Chancellor has fixed the IHT threshold, not only for the current tax year (£300,000) but also for 2008, 2009 and 2010 (£312,000, £325,000 and £350,000 respectively).

This will have little impact, in view of the continuing high level of house prices, upon those living in the South of England and in Wales.

Further tax changes, including a pre-owned asset regime, in place since 6th April 2005, have reduced the scope for lifetime tax planning. Tax-effective will drafting is therefore important; use of the nil-rate band for IHT, coupled, perhaps, with a flexible life interest for a surviving spouse, should be considered.

Statistics show that seven out of ten adults have not made a will. The intestacy rules have not changed for decades; the risk combination of inheritance by unwanted family members and potential IHT liability should be avoided at all costs.

The Civil Partnership Act 2004 came into effect on 5th December 2005; and means that same sex partners who have registered a civil partnership will thereafter be treated, for succession and tax purposes, in the same way as spouses. The same IHT “Spouse Exemption” will apply to registered civil partners (subject to anti-avoidance provisions) as currently apply to spouses

Both society in general and family relationships in particular are changing rapidly; if no steps are taken by individuals to review personal wealth and succession aspirations, the Chancellor will allow more and more estates to be subjected to Inheritance Tax, filling his Treasury coffers in the process .

A review of your assets, your will and your tax planning strategies is essential – next year maybe too late!