Reducing Inheritance Tax
August 31st, 2010 Filed under: Personal Finance Tips — Personal Finance Author
A recent survey carried out by Aviva suggests a growing number of people are attempting to pass on assets to their children whilst they are still alive, thus reducing the likely amount of Inheritance Tax attracted on their final Estate. However, there are a number of issues that need to be taken into account if you intend to go down this route.
Inheritance Tax has a threshold of £325k, the value of all assets once added up, not just your property alone. If the indications are that your Estate will be worth more than that at the time of your death, a probate specialist can help you look at ways of reducing your liability.
For example, up to £3000 can be given away penalty free each year; the only stipulation being that the beneficiary lives for seven years afterwards. If their lifespan is less than this, than that money will once again be added to the total value of your Estate.
Parents naturally feel it is safe to make these gifts to their children over several years and it is a way of bringing down the value of the final Estate. One thing you do need to consider however, is the child’s age and therefore their ability to handle the money. For that reason, these pre-inheritance gifts can be given with the same provisos as those given after death. You may stipulate that the money must be spent in a certain way, such as paying off mortgages or debts or using the money to fund their education.
For many people, watching their children being able to do things they couldn’t previously afford to do is much more satisfying than simply leaving them a portion of some of your assets in your Will, and if you feel that you can realistically manage without the money, this could be a solution which will help them both in the long and short term.
If you do decide to make gifts however, it is vital that you remember to keep your Will up to date, reflecting the gifts you have given.
Finally, be careful with the amount you choose to give away. Take care to ensure you are not leaving yourself in a weak financial position, should you need to move to supported care living and suddenly be faced with huge monthly bills. As with all decisions surrounding your Will, always confer with your professional Will writer first.
Tony Crocker
