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Year End Tax Review 2004

Inheritance Tax

Inheritance tax is often thought of as a tax for the rich, but it is really a tax for the unprepared - the rich have usually made their arrangements and pay very little. Although IHT is not so closely related to the tax year, an annual review of tax matters can usefully include checking the exposure to IHT and whether anything can be done to mitigate it. In particular, it is useful to have a clear and up-to-date Will, which has been drafted with tax in mind. This is particularly important if you have total assets, including a house and any insurance policies which would be paid to your estate on death, in excess of £255,000 - the starting point for IHT.

There are a number of standard, unobjectionable measures which people can take to save very significant amounts of IHT. These include:

• reviewing the payees of the proceeds of insurance and pension policies - if the insured person's executors are entitled to the money on a death, there will be unnecessary IHT;
  

• making regular gifts during lifetime rather than saving up for a big legacy on death - the regular gifts are generally not chargeable at all, while the big legacy is likely to cost 40% in tax.

Married couples can also take advantage of both their nil rate bands to exempt £510,000 of assets, as long as they plan in advance.

Action Point!

Have You Considered How Much IHT You Might Pay?