Inheritance Tax
What is Inheritance Tax?
Inheritance Tax is a tax payable on death on the value of your estate in excess £325,000 (the nil rate band for 2011/12). This tax is payable at a rate of 40% e.g. if your estate is worth £350,000, the first £325,000 is tax free but the balance of £25,000 will bear 40% tax i.e. £10,000.
What is included in my estate?
Your estate includes your house, contents, car, life insurance policies, as well as money in banks or building societies, premium bonds, shares and may include death in service benefits. It may also include your share in any jointly owned property and money.
How can I avoid/reduce Inheritance Tax?
Most people will want to leave the largest amount possible to their family and friends on their death. If your estate is above the nil-rate band, there may be things that can be done to reduce your potential tax bill. We can consider your individual circumstance and explore the options most suited to you. These may include:-
- Giving money away
- Placing life policies/death in service benefits into trust
- Varying your will after death
- Investing in a tax saving investment scheme
- Insuring against the likely tax bill
IMPORTANT UPDATE
On 9th October 2007 the Government announced that married couples* will now benefit from a joint allowance of £650,000 (2011/12 figures). In practice, this means that if one spouse dies leaving everything to the survivor, then on the death of the survivor there will be double the nil rate band at the time of the survivor’s death to pass down tax free. However, if one party dies leaving £50,000 to someone other than spouse, and the survivor inherits the rest of the estate, the survivor would only have £600,000 (2011/12 figures) to pass down tax free.
These changes will also benefit widows/widowers, even if their spouse died a number of years ago.
Before 9th October 2007, many people incorporated Discretionary Trusts into their wills as a means of limiting/avoiding inheritance tax. Unfortunately, following these changes, these wills will not normally be helpful with regard to Inheritance Tax mitigation and it may be worth reviewing them to consider reverting to more simple wills.
*Any reference to married couples or spouse also includes civil partners
Remember that this information is only correct for the tax year 2011/2012. The Government may change the Inheritance Tax rules in any budget.
Contact us on one of the following numbers for further information:-
Middlesbrough 01642 230700
Ingleby Barwick 01642 754050
Coulby Newham 01642 233980
