Even in death the Inland Revenue waits in the wings, but there are ways to keep your money safe
Surging property prices have left an estimated 1.4m homeowners vulnerable to inheritance tax (IHT), which is now charged on estates worth more than £275,000.
Gordon Brown has so far held back from an onslaught on inheritance tax planning wheezes - presumably for fear of sparking a full-scale revolt by Middle England. But equally, he has shown little interest in easing the pain for those with estates valued above the nil-rate tax band limitation. While the price of the average property has risen by about 60% in the past five years, the nil-rate tax band (the amount you are allowed to leave free of IHT) has risen by just 16% to £275,000.
The simplest way round the problem is to leave your estate to a nil-rate band discretionary will trust. When you die, your beneficiaries can then borrow back the trust's assets in the form of an interest-free loan. When they die, the loan will be repaid from their estate.
Until now discretionary will trusts have been seen as open only to married couples, but it has emerged that they are also available to single people and unmarried couples. There is nothing to prevent anyone from making use of the concession. The Capital Taxes Office has confirmed this interpretation.
This means that anyone can use discretionary will trusts, even if they don't have much money. You simply insert a special clause in your will and, if it turns out not to be necessary, it can be ignored.
An example: a couple has assets of £550,000 divided equally between them. Their will includes nil-rate band trusts. One dies leaving £275,000 to the trust tax-free, the other partner now has £550,000 to play with and no IHT liability. When the survivor dies, their total estate is reduced by the £275,000 debt to the trust.
In theory, assets in the trust are limited to £275,000, but there are various legal ways of increasing this limit.
Copy supplied by Heritage Will Writers
Email: enquiries@heritagewillis.co.uk
Tel: 01603 430092
