Make the most of today for heirs tomorrow

Make the most of today for heirs tomorrow

By Anthony Bailey

PRE-BUDGET speculation has begun early this year. The next Budget may not be until November, but there are already reports that the Chancellor is proposing to do something about inheritance tax because it is hitting middle-class voters.

But second-guessing the Chancellor is notoriously difficult. It may be unwise to assume there will not be an inheritance tax problem in future.

Inheritance tax starts to bite at a rate of 40 per cent on the value of estates in excess of £150,000 (£154,000 from 6 April). People with modest homes in comfortable suburbs and a variety of investments could easily cross the threshold.

But since they cannot save themselves tax - only their heirs benefit - they need to be careful not to lose control of their assets and leave themselves short.

The tax is a levy both on death and on gifts made within seven years of death. Transfers for those within the £150,000 band will not be taxed, and gifts of any amount made more than seven years before death fall out of the reckoning altogether.

That is one reason why people give away money or other assets well in advance of their intended demise. But there are pitfalls for the unwary. For example, it is not possible to give a home to a trusted son or daughter unless it is truly an outright gift without strings attached. And the gift of other assets, such as shares, could incur an immediate liability to capital gains tax. Serious inheritance tax planning - possibly involving the use of trusts - requires specialist advice.

Relying on family members to see that you will be all right does not allow for the unpredictable disputes that can break out in the most harmonious of families. And complications could certainly arise if offspring were to die first, or get divorced.

For those whose beneficiaries will be liable to inheritance tax, there is a useful exemption for gifts totalling up to £3,000 each tax year. So now could be a good time to look kindly on favoured children, grandchildren and friends. It is possible to exceed the limit if gifts under this exemption fell short of £3,000 in the previous tax year. And there will be no danger of tax on gifts over the limit once seven years have elapsed.

A separate exemption applies to small gifts of up to £250. It is possible to give any number of people gifts of this amount each tax year without fear of a subsequent tax bill.

Gifts between husband and wife living together are entirely outside the tax net.

Nor is there anything to worry about for those who intend to give everything away to charities and certain institutions, including the main political parties. Such gifts are tax-free.Main exemptions

Transfers to

UK domiciled spouse no limit

non-UK domiciled spouse (from UK domiciled person) £55,000

UK registered charities no limit

Lifetime transfers

Annual exemption per donor £3,000

Small gifts, annual amount per donee* £250

Regular gifts out of income varies

Wedding gifts

To child of donor £5,000

To grandchild (or remoter issue) or donor £2,500

To others £1,000

*Not available to cover part of a larger gift

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Phillips Idowu, Stella McCartney and Jessica Ennis
fashionMcCartney to continue designing Team GB Olympics kit until 2016
Sport
Shinji Kagawa and Reece James celebrate after the latter scores in Manchester United's 7-0 victory over LA Galaxy
football
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Sport
Farah returns to the track with something to prove
Commonwealth games
Life and Style
fashion Designs are part of feminist art project by a British student
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Research Analyst - Recruitment Resourcer

£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

Senior Analyst - Financial Modelling

competitive: Progressive Recruitment: This really is a fantastic chance to joi...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game