Inheritance Tax Planning – are you making the most of your ‘tax free’ sum?
Release date: Oct 2006

Are you utilising the "tax free" sum you can give away? The current threshold for Inheritance tax (IHT) is £285,000 and many couples have made wills leaving all assets to the surviving spouse. This is spouse exempt for tax purposes but means that only one is making use of the "tax free" sum.

Many people have joint assets which may exceed the tax threshold, but do not feel they have sufficient assets in their own name to either give them away to someone other than their spouse on their death or to create a trust.

You must ensure that adequate financial provision is made when making your will for anyone who can prove some form of financial dependency on you. Therefore a Discretionary Trust may be of assistance. Assets may be placed into it or, as is often the case, if the house is owned as tenants in common in equal shares, then the surviving spouse may have that share of the house transferred to them in return for a legal/equitable charge placed against the property (much like a mortgage). This is a "debt scheme".

The surviving spouse may be one of the beneficiaries. When they die, they owe the value of the charge back to the Trust, so reducing their net estate for tax purposes. This can effectively shield up to £570,000 worth of assets from the Inland Revenue.

As it is discretionary, the choice of trustees is very important, as they have total discretion as to who may benefit and by how much. There are also income tax issues which may need to be considered if there are income producing assets in the trust.

For further information contact Iain Robson
iain.robson@close-thornton.co.uk

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