Independent Financial Advisors - IFA Bolton, UK

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Inheritance Tax

Inheritance Tax (often referred to as IHT) is the tax levied by the government on your estate when you die. Essentially it is a very simple tax – a charge of 40% is made on the net value of everything that you own above a designated threshold which is called the Nil Rate Band (commonly referred to as the NRB).

SEE HMRC WEBSITE - http://www.hmrc.gov.uk/cto/customerguide/page1.htm

It is levied on the net value of everything that you own, including your main residence, any second property, any cash savings and investments you may have, cars, boats, personal effects (jewellery for example) and even the value of your life assurance policies.

Currently the NRB threshold for each individual for the tax year 2010/11 is £325,000. In addition, with effect from 9th October 2007, any portion of the NRB unused when a spouse or civil partner dies may be transferred to the surviving spouse or civil partner and used when calculating their liability for Inheritance Tax when they die (see Allowances and Exemptions).

It is not just a tax on the very wealthy. Recent rises in property values and increased personal wealth mean that many more people own assets which are (or will be) valued well above the NRB threshold.

So without IHT planning your family could be faced with a very large tax liability when you die, meaning that they will not benefit as much as they should from your estate - but the government will!

How much Inheritance Tax might my family have to pay?

Assuming that you did nothing at all to reduce your Inheritance Tax liability and no unused NRB was transferred to you resulting from the death of your spouse or civil partner, this table shows exactly what your family’s liability might be:

 

Estate Value

Amount Taxable *

IHT payable at 40%

£300,000

£0

£0

£400,000

£75,000

£30,000

£500,000

£175,000

£70,000

£600,000

£275,000

£110,000

£700,000

£375,000

£150,000

£800,000

£475,000

£190,000

£900,000

£575,000

£230,000

£1,000,000

£675,000

£270,000

* Based upon 2010/11 tax year Nil Rate Band



But with sound financial advice, careful planning and making full use of the IHT Allowances and Exemptions, your liability can be significantly reduced, all perfectly legally, through reducing the value of your estate over a number of years.

Typical approaches to reducing IHT liability are:

• The efficient use of Trusts

• Ensuring assets are individually owned by family members up to the NRB threshold

• Putting a suitable Will in place

• Making full use of all Allowances and Exemptions

• The giving of Assets as gifts (often called Gifted Assets)

• The use of IHT efficient investments

It is very important to consider planning well ahead, while you are still in good health. For example, Gifted Assets retain a (reducing) liability over seven years from the date of the transfer.

 
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