Solicitor Mark Cannon talks us through some of the issues surrounding Inheritance Tax.
Inheritance tax (IHT) is charged on the value of your estate at death; and death includes the seven years before you die. So if you have given away £50,000 to a daughter a year before you die, then that £50,000 will be taxed.
The current rate is 40% of your estate value, so it can be a very large bill for your executors.
There are some things which you can do. Each of us has an allowance of £325,000. Further, if you are planning to leave the family home to your children or grandchildren, then a new, additional allowance of £175,000 will soon be available.
You can give away £3,000 per annum and not be taxed. You can give larger sums as wedding gifts to children and grandchildren, and you can also give larger sums away provided that the cash comes out of your income and not your capital.
Still the best way to avoid IHT is to give assets away, and then live for seven years. After seven years the gifts are no longer taxable. Of course, most of us cannot afford to give away our assets, and we don’t know when death will come, but if you want to keep your cash, receive an income, and also avoid IHT, then you can invest it in certain “IHT-free” products. These are, usually, certain types of shares, and, to encourage investment, the government allows them to be free of IHT on death. There is, of course, a risk in any investment but your investment has to go very wrong to lose the 40% which you would otherwise have paid in tax.
In most cases, you will need to take careful advice based on your own particular circumstances.
Mark Cannon can be contacted on 0800 169 1325 or via e-mail at mark.cannon@applebys-law.co.uk.