KEEP IT IN THE FAMILY RATHER THAN PAY TAX!
Mainly because of the increase in property values, many more estates will be liable to Inheritance Tax (IHT). IHT is payable on your assets when you die. In the case of married couples, tax is payable only on the survivor's wealth when he or she dies, as the gift to the survivor on the first death is exempt (this also applies to Civil Partners).
Currently the first £300,000 can be given away tax-free. Inheritance tax is payable on the excess. The tax bill can be heavy; for example, the tax liability on an estate of £600,000 would currently be £120,000 if you leave your assets to each other.
HERE IS HOW THAT WORKS... Take a married couple who each own £300,000 worth of assets. On the first death, the surviving spouse receives the deceased spouse's assets, because all gifts to a spouse (UK domiciled) are tax-exempt. On the death of the survivor, the estate, now worth £600,000 is taxed as follows:
*The first £300,000 is tax free * The remaining £300,000 is taxed at 40%, = £120,000. Therefore, only £480,000 passes to the family.
THE ALTERNATIVES
1. The couple could give the first £300,000 on the first death to their children. The problem here is that, whilst no inheritance tax is payable, the survivor may need that money to maintain a comfortable standard of living and if, as is often the case, much of the gift may be part of the home, this could cause major complications.
2. The couple could make Wills, which incorporate Discretionary Trusts, which can include a loan back arrangement. These special trusts allow the surviving spouse to have full access to the trust assets or to take a loan from the trust to do with as they see fit. This cuts IHT out completely, so the children receive an extra £120,000. Who would you rather leave it to?
