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You can't take it with you
Planning for Inheritance Tax (IHT) is a difficult issue. You have to think about what will happen after you're gone, and many people would rather not. Often, you have to give things away and live for the rest of your life without them, and that may reduce your security. It's particularly difficult when the single largest reason most people fall within the IHT net is their house. Quite literally, your house is the last thing you want to give away - but it's also the last thing you want to end up paying tax on.
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There are a number of plans which try to put the value of your house out of the reach of
IHT, while letting you stay in it for the rest of your life. One of the problems is the long-term nature of the plan - you put it in place, then you may wait 20 or 30 years to find out whether it works. One such plan was held to be effective in avoiding IHT earlier this year, only for the Government to close it down for new arrangements set up after June.
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One recent book on the subject pointed out that some schemes depend on leaving a share of the house to the next generation when the first parent dies, with an unwritten "understanding" that the surviving parent will be allowed to live in it undisturbed. The authors suggested that anyone intending to use this plan should first go to see a performance of King Lear - as a warning that children are not always co-operative about their inheritance!
If you think that your total assets exceed £255,000 - the starting point for IHT - we will be happy to advise you about ways to mitigate the potential charge. If you have not drawn up a Will - or have not looked at it for some time - we will be happy to discuss that with you.
The case referred to is the Court of Appeal's decision in Eversden v CIR. The scheme involved the transfer of a share of a house from the wife to an "interest in possession trust" for the husband; when he died, the value of the share was charged to IHT in his estate, and the share of the house then passed into a discretionary trust of which the widow was a beneficiary. When she died, the Revenue thought that the value of the whole house should be charged to
IHT, because she was living in it, and had originally owned all of it. But the Court held that she was entitled to live there because of the share she had retained, and the rules on "gifts with reservation of benefit" (giving something away but continuing to enjoy it) did not apply to an asset that had been given between wife and husband like this.
This particular scheme was closed by s.185 FA 2003 for new arrangements set up from 20 June 2003 onwards.
There are a number of sources for suggestions on planning for the family home, and for IHT in general, such as Tolley's Tax Planning and other more specialised works. The book referred to is "Tax Planning for the Family Home" by Robert
Venables, Richard Vallat and James Henderson.
Probably the starting point for any discussion of IHT is to make sure that the client has a sensible and specific Will. Drawing up a Will (and charging for the service) may require a solicitor, but an accountant can certainly discuss the tax consequences of one.
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