Christopher McNeill, Solicitor
Overseas (Journal of the Royal Overseas League) - June-August 2009
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Now that the nil rate band (NRB) for paying inheritance tax (IHT) has increased to £325,000, and it produces less than 1% of annual revenue, it can no longer be viewed as a wealth tax. But is it still a voluntary tax? And how can you avoid leaving your loved ones with a huge tax bill?
Start with simple lifetime giving. The main limitations are to survive the gift by seven years and not to reserve a benefit for yourself. These rules are widely known, but people often overlook the fact that, if you have paid all income tax due, you can also use any income that you do not need to establish a regular pattern of giving that is not subject to IHT. Taken with the annual exempt capital amount of £3,000, many married couples can easily give £120,000 over a 10-year period without impairing their lifestyle or producing unexpected tax bills. Unlike capital gifts, there is no claw-back on death within seven years.
Jointly occupied property also offers substantial exemptions. A child living with you and sharing the household expenses can be given, say, 95% of the house value, thus allowing (but not compelling) them to pay up to 95% of the expenses. The seven-year rule still applies, but a child can sometimes 'occupy' a house just by having their possessions there.
Trusts enable you to give away up to £325,000 every 10 years without charge, while a discretionary trust allows you to postpone the payment of capital gains tax on chargeable assets. As to the estate on death, a properly drawn will that makes proper use of NRB trusts, or of the transferrable NRB, is essential. In life or in death, gifts to charity continue to be exempt without limit.
Christopher McNeill is a solicitor at Anthony Gold. He specialises in all area of wills, trusts, tax and probate. For further information email Christopher McNeill or call 020 7940 4000.
