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Skandia says £1bn IHT bill is avoidable

Almost £1bn could unnecessarily be subjected to inheritance tax this year through a failure to write life insurance policies in trust, says Skandia.

In 2003-04 almost 11,000 insurance policies worth a total of £597 million were potentially taxed, but the proceeds of these policies may have been immune from IHT had they been held in a trust.

Skandia claims this figure may grow to £960 million in the 2007-08 tax year if the value of life insurance policies potentially liable to IHT continues to increase at the same pace as in previous years.

The new proposals to increase the IHT reporting thresholds, announced by HMRC last week, should further reduce the compliance burden associated with reporting trusts, according to Skandia.

Under the new proposals, more trusts should be below the higher thresholds of £210,000 and £255,000, compared to the previous limits of £10,000 for Chargeable Lifetime Transfers made in any one year and £40,000 for CLTs made over a ten-year period.

Skandia head of tax and financial planning Colin Jelley says: “When someone takes out a life insurance policy, setting up a trust is a simple step that can be well worth doing. The value of holding a policy in a trust can be substantial and there are seldom situations where it makes sense not to put a protection policy in trust. Nearly £1 billion may have been taxed unnecessarily in a single year – it would be crazy for that to happen again this year.”


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