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10-February-2007
Do you have a tax efficient Will?
Gordon Brown’s Budget crackdown on Trusts have so far missed Discretionary Will Trusts allowing families to save Inheritance Tax of up to £114,000.00.
The Halifax has estimated that the number of properties valued at more than £285,000.00 could triple from 1.5 million this tax year to 4.2 million by 2020. The number of £1 million pound properties is also soaring boosting the Revenue’s Inheritance Tax take even further. There are now an estimated 66,600 properties worth at least £1 million pounds compared with only 3,400 in 1995.
When Labour came to power in 1997, the Inheritance Tax threshold stood at £200,000.00. Today it is £285,000.00 an increase of 42.5%. Over the same period, house prices have risen on average by 140%. Millions more householders are now caught in the Inheritance Tax net. Inheritance Tax generates £3.4 billion in Tax Revenue each year. A substantial portion of that money could have been saved by writing tax efficient Wills.
The Current Nil Rate Band for Inheritance Tax (IHT) purposes is £285,000.00. This is due to increase in the 2007/2008 tax year to £300,000.00.
An example of where a Discretionary Will Trust works well might be for a married couple (or civil partnership) who own their house, conveniently worth £570,000.00 but have little by way of other assets. The house should be owned as Tenants in Common and not Joint Tenants which means each party owns a separately identifiable half.
The Wills would be set up so that on the death of the first spouse, say the husbands, assets up to the value of their Nil Rate Band (currently £285,000.00) would pass into a Discretionary Trust set up for the benefit of their surviving spouse and children. The trustees could then loan the trust assets to the wife, being the half share in the family home accordingly, the wife would simply owe the Trust £285,000.00. On the wife’s death, the Trust would call in the £285,000.00 loan (which maybe subject to the payment of interest) which would then be deducted from the value of her estate, with the remainder of her estate of £285,000.00 falling within her Nil Rate Band, so that there would be no Inheritance Tax to pay.
It is a straight forward and cost effective scheme that is fully compliant in the eyes of the tax man.
ENDS
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