Ways through the minefield of estate tax
Sunday 28 May 1995
Falling property prices have eased the problem for many families, but some could still be caught unless they plan ahead. The first rule of estate planning is that you cannot save yourself a tax bill. In most cases, the tax is levied after death on someone's estate and on the value of certain gifts in the seven years before death. So there is no point in risking penury for the sake of heirs.
But for anyone seeking significant savings, it is advisable to pay for professional advice. The detailed inheritance tax rules are laden with pitfalls for the unwary. For example, the biggest single asset for many is the home. But giving it away and then living there for a nominal rent will not impress the Inland Revenue. It could be a "gift with reservation" and useless for the avoidance of inheritance tax. .
One ruse is to give half the home away on death - enough to make use of the pounds 154,000 nil-rate band - while leaving other assets to the surviving spouse. Then the estate of the surviving spouse will be that much smaller on death and there will be a lower tax bill.
First it is necessary to establish the right type of joint ownership. With a joint tenancy the home goes automatically to the surviving spouse. With a tenancy in common, each joint owner is allowed to give his or her share to someone else.
When it comes to fairly substantial estates, planning becomes more complicated and expensive. Taking out sufficient life insurance to cover the tax bill on the estate on death is one option, but the cost could outweigh any eventual tax saving.
It is always advisable to make sure a life policy of any kind is written in trust to chosen beneficiaries. In this way the pay-out does not form part of an estate and is outside the tax net. Insurance companies can easily arrange for life policy proceeds to be written in trust.
And the use of other types of trust lies at the heart of much estate planning. There can be several reasons for putting things in trust rather than simply making an outright gift.
For example, one common practical option is to set up a trust for children or grandchildren who are too young to be given substantial assets.
And trusts of any sort allow the giver to retain some control over the assets. It is even possible to make a loan to a trust - which means that the giver can recoup the assets if circumstances change.
But gifts to certain "discretionary" trusts carry an immediate charge to inheritance tax - just one good reason why professional advice is essential.
o The David Aaron Partnership, based in Woburn Sands, Buckinghamshire (01908-281544) publishes a 'Simple Guide to Inheritance Tax' for pounds 7 post- free.
- 1 Half of young women unable to ‘locate vagina’ and 65% find it difficult to say the word
- 2 Perez Hilton apologises for Jennifer Lawrence naked photo leak
- 3 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 4 Mexican woman becomes world’s 'oldest person' at 127
- 5 Jennifer Lawrence 'naked sex video' will be leaked threatens 4Chan celebrity photo hacker
Perez Hilton apologises for Jennifer Lawrence naked photo leak
Ariana Grande nude photos leak: 'These are completely fake' say singer's representatives
A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
Israel to appropriate 400 hectares in West Bank for ‘state use’
Kate Upton nude pictures leak: Model's representatives 'looking into' authenticity of naked images
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Ashya King: Parents of five-year-old boy refused permission to visit him in hospital and denied bail at Spanish court
With Douglas Carswell joining Ukip, my party has taken another giant step forward
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
iJobs Money & Business
£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...
£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...
£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...