I can offer you advice in relation to tax planning both in life and upon your death.

INHERITANCE TAX

Currently everything that you leave on your death which exceeds £300,000 is potentially liable to Inheritance Tax at the rate of 40%.

There has been much discussion recently as to the inequality caused by the fact that the Nil Rate Band has failed to keep pace with the high property prices. The result is that beneficiaries of thousands of people who would have previously escaped this liability are now facing massive Inheritance Tax bills on their deaths.

I can discuss ways in which you can minimise this liability and in certain circumstances reduce it to nil.

An extremely popular device employed by couples in such circumstances is to establish a nil rate band discretionary trust will.

Nil Rate Band Discretionary Trust Wills

For married couples there is a complete exemption by passing everything to a surviving spouse by gift or Will. However, by passing everything to the surviving spouse, this fails to make use of both nil rate bands. Consequently, a potential tax saving of up to £120,000 (i.e. 40% of £300,000) is lost immediately. This can be demonstrated as follows:-

Failure to use both nil rate bands:

Husband

Assets - £300,000

Wife

Assets - £300,000

e.g. Husband dies first

Husband leaves £300,000 to Wife.

No Inheritance Tax due to spouse exemption

Second Death

Wife’s estate = £300,000 + £300,000 (inheritance from Husband) = £600,000

£600,000 - £300,000 (nil rate band) = £300,000

IHT @ 40% on £300,000 = £120,000

Using Both Nil Rate Bands

If the Husband had used his nil rate band and left this to a class of beneficiaries who would otherwise be chargeable to Inheritance Tax, the bill would have been reduced to nil.

First Death

Husband leaves £300,000 to a nil rate band discretionary trust.

IHT = nil

Second Death

Wife’s estate = £300,000

As this is equal to the current Nil Band Rate then there is no Inheritance Tax.

Therefore by using both nil rate bands there has been a tax saving of £120,000!

In order to use both Nil Rate Bands, it is not necessary for there to be cash or investments in excess of £300,000; many people nowadays find themselves ‘property rich’ but ‘cash poor’. In these circumstances, a share in the family home can be used to constitute the trust.

Wills of this nature are referred to as Nil Rate Band Discretionary Trusts and go hand in hand with a severance of the joint tenancy in the family home (to create a tenancy in common).

Please contact me for more information.