Magazine article Management Today

Facing Up to Death and Taxation

Magazine article Management Today

Facing Up to Death and Taxation

Article excerpt

The fortune you intend to pass on to your nearest and dearest could be severely reduced by inheritance tax. But, says Robert Outram, good planning can lower the bill markedly

'Know that we have divided/ In three our kingdom, and 'tis our first intent / To shake off all cares and business off our state,/ Confirming them on younger years.'

So said King Lear. For Lear, rejected by his ungrateful daughters, estate planning fumed into a real nightmare. It's still a good idea, though, particularly where inheritance tax is concerned. Benjamin Franklin tells us that nothing can be certain: 'except death and taxes.' The tax charge on your estate after death is far from inevitable, however -- good advice and planning can reduce it drastically.

It is often said that inheritance tax is a 'voluntary tax.' That's sort of true, says Mike Warburton, head of tax at accountants Grant Thornton: 'In theory, it's an optional tax, but it's not as simple as that. You could say, though, it is only the stupid or ill-informed who pay large amounts of inheritance tax.'

The main device to avoid paying tax on assets over 200,000[pounds] is to give money away during one's lifetime. At present gifts up to any amount are exempt as long as the giver survives for seven years or more after the transfer. Gifts of up to 250[pounds] per recipient are not chargeable, and if the taxpayer can establish a 'pattern of giving' out of their normal annual expenditure over several years, this may be exempt too. Otherwise, there is a ceiling of 3,000[pounds] per annum on the total value of tax-exempt gifts (however many recipients).

It is hard to exaggerate the importance of making a will. Dying intestate will leave more of one's assets in the hands of the state. For large estates, a will should be planned in order to make use of the tax exemptions available. Changing the nature of ownership of one's house can also help to minimise tax. Most freehold property, if owned by a married couple, is held as a 'tenancy in common' which means that on the death of one partner it will automatically belong to the other. If the title is changed to a 'joint tenancy', part of the equity in the house can be transferred to children on the death of the first partner, again minimising inheritance tax.

Trusts can also be an important part of tax planning. An alternative to giving your children the money to spend right away is to transfer funds into a trust set up for their benefit. …

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