Inheritance Tax: Keeping The Revenue Wolves At Bay?

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Inheritance Tax

London, UK (PRWeb UK) June 23, 2009

Research conducted by independent financial advisers, Pryce Warner International found 64% of UK adults were unsure of even the basic rules, limitations and regulations of inheritance tax liability and that a staggering 72% of adults aged 35-45 had not made or planned to make a will in the next few years, an indifference that may cost them dearly in the long term. As of 6th April 2009 all individuals have a 'Nil Rate' of inheritance tax, which is applied to the value of your estate. This 'Nil Rate' is currently set at 0% on the first £325k, over this amount 40% of what's left will be taken in taxes and paid to the state. If a spouse/civil partner demises without utilising any or part of their 'Nil Rate' allowance and the remaining spouse/civil partner dies, executors may be eligible to transfer the initial spouse/civil partner allowance, making a combined 'Nil Rate' claim allowance of 0% inheritance tax up to the first £650k. There is no inheritance tax to pay on an estate left to spouse/civil partner under the spouse/civil partnership exemption provision.

For those beneficiaries outside the radar of spouse/civil partner lifetime 'gifting' is a way to reduce your liability. An individual may 'gift' any amount they desire but if the amount exceeds £3k they must outlive the date of the transfer by seven years in order for it to be considered outside the estate of the individual. One of the main concerns of respondents was the individuals fear that regular smaller instalments may be misused by beneficiaries and spent on frivolous items as opposed to being properly invested if for example, an 'inheritance lump sum' was received. An individual may instead 'gift' monies into a trust so that recipients can benefit from the funds in the future without being entitled to the total capital at once. This process can be repeated every seven years; so in essence to reduce tax liability the earlier you start planning the less you'll be liable to pay.

Another consideration for reducing liability is an exception known as the Normal Expenditure out of income. Whilst receiving an income an individual can commit to 'gift' some or all of their surplus income. The seven-year rule is not applicable as gifts from income are not subject to inheritance tax. This exemption can be sought by executors once the individual dies.

Other allowances that can greatly assist tax planning and may be pertinent include business property relief, shares, securities, SIPPS and QROPS pension schemes. Methods to minimise tax accountability are constantly evolving, impeccably illustrated in the practice whereby wealthy individuals buy highly desirable country homes with non-utilised 'agricultural' land that subsequently attract significant tax relief have now become moot points of E.U legislation.

Tax and investment planner David Harra states that "Professional independent financial advice on life tax planning will ensure that your legacy will maximise potential tax savings and takes advantage of current tax legislation"

Complexities are further enhanced when individuals pass on intestate. Pryce Warner agrees that most people are under a false sense of security about the necessity of leaving a will. Individuals who fail to do so can expect to leave intended beneficiaries with the burden of increased tax, acrimony and complications. Family changes throughout life with marriages, divorce and children. Intestacy rules are expensive for intended beneficiaries to contest and can sour relationships after you've gone. It is vital to make a will and keep it up to date and that family members know where it is should the need arise. Most cases of inheritance tax liability are not as straightforward as it may first appear, wills to children, siblings, friends, charities, step children all make the process more complicated.

Commentary by Altum Interactive Marketing for Pryce Warner International Group Ltd. Pryce Warner provides professional independent financial advice to plan and minimise inheritance tax liability. For more information call +377 9797 2922 or visit their website.

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