Good heir day
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The rules for tax year 2009/10 on inheritance tax are that if you are single and have assets over £325,000 or married or in a civil partnership with assets over £650,000, your heirs will pay 40 per cent of the value of any assets over this amount.
Every £325,000 of taxable assets you leave behind above the threshold could create an IHT bill of £130,000 for your heirs to pay.
The first place to start IHT planning is to ensure that any life insurance policies are written in trust, make sure that you use the inheritance tax allowances and finally but most important to make sure you have an up to date will to make sure your loved ones do not miss out on their inheritance and to limit the tax paid on your estate.
The statistics show that an extra £2.24bn could go to chosen heirs by planning properly to avoid IHT liabilities.
When you die, your heirs will need to contact the Probate Office to gain the grant of representation which is the proof of legal authority required by the person who is entrusted with dealing with a deceased person's estate.
Then, the aggregate chargeable transfer or the total amount on which inheritance tax is charged is calculated.
This is made up of the deceased's personal and real estate, any interest-in-possession trusts in which the deceased was treated as having a beneficial interest, gifts with reservation, the deceased's share of joint property, all chargeable transfers made by the deceased in the seven years prior to death and the value of any alternatively secured pension from which the deceased was entitled to benefit as the original scheme member.
Over the years, there has been a reduction in the number of ways to legally reduce inheritance tax due to the introduction of the reservation of benefit and the pre-owned assets tax rules which restrict the effective gifting away of assets to deliberately reduce IHT.
I recommend to you, however, two IHT-reducing schemes you may want to consider, discounted gift schemes and loan trusts.
A discounted gift scheme may be suitable for you as you do not want your capital back and you are happy to accept a set amount of regular withdrawal which cannot be changed in future years.
The discounted investment amount which will be invested in a range of collective investment schemes to match your risk profile, will be completely outside of your estate after seven years as the gift is seen as a potentially exempt transfer.
Do be aware that my advice is that you spend the regular income you receive from the scheme or you will simply be adding back to the value of your estate.
Under a loan trust, you would make an interest-free loan repayable on demand, the proceeds of which are placed in a single-premium life insurance bond written in trust for your heirs. All growth is outside your estate for the benefit of your heirs and there is no requirement to survive for any period of time.
As the interest-free loan is not a gift for inheritance tax purposes there is no potential inheritance tax charge on setting up the trust. However, it needs to be remembered that the value of the gift will remain inside your estate.
Kim North is director of Technology and Technical
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