Your questions answered by an expert panel from Coopers & Lybrand

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The Independent Online
I understand that something called a nil rate band discretionary will trust is a very efficient scheme of mitigating against inheritance tax. Can you confirm this? Are any future changes to this tax likely to be retrospective?

When a person dies, the first pounds 154,000 (the "nil rate band") of their assets are free of inheritance tax, although gifts in the previous seven years have to be taken into account as well. Where an individual leaves everything to his or her spouse, the benefit of his nil rate band is wasted, because assets passing to a spouse are tax-free anyway. When the surviving spouse dies, the first pounds 154,000 of the assets is free of inheritance tax, but the rest is taxed at 40 per cent.

The nil rate band can be better utilised by a specific legacy to, for example, children, with the rest of the estate being left to the surviving spouse. However, it is important that the surviving spouse should be adequately provided for before putting these tax-saving arrangements into place.

A nil rate band discretionary will trust can achieve the same result but with greater flexibility. The amount equal to the nil rate band is left to a discretionary trust. The beneficiaries of the trust typically include children, grandchildren and the surviving spouse; the latter will also be left the balance of the estate. The trustees can decide how the assets should be distributed, having regard to the needs of the spouse. But if the assets are distributed within two years of the death, it is regarded for inheritance tax purposes as if they had been given directly by the deceased.

If you wish to draw up a will containing a nil rate band discretionary trust, you should consult a solicitor.

Changes to tax law are not normally retrospective in their effect. The inheritance tax consequences of a death will depend on the law in force at the time of death. You should keep your will under regular review, especially when there are relevant changes to the law or if your family's circumstances change.

I want to use my child benefit (about pounds 40 a month) to invest long term for my son, ie over a period of18 years. Would an endowment policy be suitable for highest growth? Or should I go for a unit trust or a high rate tax-free savings account with a building society?

Equity investments such as unit trusts have generally performed better than cash and fixed-interest investments over long periods, but you should be aware that the price of shares and income form them can go down as well as up.

Endowment policy savings are invested in a mix of sectors such as cash, fixed-interest and equities, but endowments have a number of disadvantages. They are inflexible and charges are high, particularly in the early years of the policy. In addition it may be preferable from a tax viewpoint to save through a unit trust rather than an endowment policy.

You could invest initially in a unit trust savings scheme designed to achieve long term capital growth. Regular savings schemes are available which accept payments from pounds 25 a month. If the account is designated for your son, dividend income up to pounds 100 a year is his for tax purposes and tax credits or income tax deducted should be reclaimed. However, once dividends exceed pounds 100 the total amounts payable would be treated as your income and would be taxed at your marginal rate. Unit trusts aiming for capital growth rather than income may therefore be more attractive as the savings build up.

After 10 to 15 years, you may wish to reconsider whether some of the savings should be held in cash, as the risk of share prices falling may be less acceptable in the last few years before the investment proceeds are due to be passed to your son.

I normally travel by train to work. Sometimes, however, I need to visit a supplier, the journey from home by public transport is slow and difficult so I go by car. Does the trip count as business mileage?

At least some of it will. Business mileage in the company car is calculated for tax as mileage necessarily driven in the performance of the duties of the job. Clearly it is necessary to visit the supplier. But is all the mileage "in the performance of the duties" of the job?

Arguably yes, but the Inland Revenue do not accept this. They say that anything in excess of what you would have driven had you started from your office is the result of your personal preference. After all, you choose where you live. So they treat the lower of the actual journey and the one between your business base and the supplier as business mileage and any extra must be private The law is not wholly clear, but the view of the Inland Revenue is.

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