Inheritance Tax

Like so many taxes the issue can be complex, but for most people it is relatively straightforward: your estate (everything you own) is potentially subject to tax at 40% above a threshold figure known as the ‘nil rate band’ (£325,000 in the tax year 2009/10 rising to £350,000 by 2010/11).

There are exemptions both on ‘transfers of value’ and gifts. The main exemption on ‘transfer’ is that of a transfer between spouses. If each partner in a marriage leaves their estate to their surviving spouse there is no immediate tax charge but will be deferred until the second spouse dies. This can be advantageous in many cases but may also be disadvantageous, in that, one of the spouses’ ‘nil rate band’ will be lost if not used on the first death.

Some gift exemptions are for marriage, minor gifts, gifts to charity, and potentially exempt transfer (providing that the donor survives 7 years from the date of making the gift).

A useful guide to Inheritance Tax is available from the Inland Revenue website at http://www.hmrc.gov.uk/cto/customerguide/page13.htm but as with all tax matters it is important to seek expert advice before proceeding with any planning to mitigate the effects of this tax.

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