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INHERITANCE TAX RELIEF
Inheritance Tax (IHT) is essentially a tax on death. It is often described as being "a voluntary tax", meaning that it is avoidable with the right assistance and planning. With a rate of 40% payable on all assets over £325,000.
There are several exemptions to IHT:
The Nil Rate Band - you only pay IHT on cumulative transfers of assets over £325,000. Below this figure it is a "nil rate band".
Transfers Between Spouses - No IHT is paid on any transfer of assets on death from husband to wife (if both have the same domicile), or vice versa.
Annual Gift of £3,000 - You can give away up to £3,000 worth of gifts every year to whoever you like, and if you can afford to do so, you should try and use this exemption every year.
Gifts out of Income - regular gifts of surplus income, as opposed to capital, are exempt from IHT.
Small Gifts of up to £250 - This is £250 per person, but it cannot be the same person you gave the £3,000 annual gift to.
Gifts on Marriage - You can give £5,000 to your own child on their getting married, £2,500 to your grandchild and £1,000 to anyone else.
Gifts to Charities - any gifts to charities are exempt from IHT.
The first stage in tax planning is to work out exactly what you have and what you are worth in order that you can make plans to avoid IHT in plenty of time. Everything must be considered including company benefits and death service benefits. You will need to carefully consider where you want your money to go and whether or not it would be efficient to make gifts whilst you are still alive.
In the UK there is currently no gift tax in operation although there is a potential liability for inheritance tax when gifts are made. If you do not live for at least seven years after making a gift then IHT is payable which means that it will be more sensible to give assets away to family members early to avoid tax later. There are a large number of other ways which liability to pay tax can be reduced including the annual gift allowance and tax free marriage gifts applicable to the parents and grandparents of the bride and groom.
MARRIAGE & DISCRETIONARY TRUSTS
Married couples can save a considerable amount of tax by managing their assets properly and by taking advantage of the nil rate inheritance tax bands. There is no tax payable on death when assets transfer from one spouse to another however, once those assets are in possession of the surviving spouse the opportunity to claim the deceased partner's tax exemption of £325,000 may have been lost. Far better for the deceased spouse to have left goods to the value of £325,000 to younger members of the family or to have placed that money into a Nil Rate Band Discretionary Trust for the benefit of the surviving spouse which enables the surviving spouse to take advantage of the fund and of the tax relief.