Summer 2010

ROUNDABOUT MAGAZINE SUMMER 2010

THE LEGAL HELP COLUMN

Welcome to the latest Bowcock Cuerden Legal Help Column. For this edition I am again talking with David Bevan, Head of the Private Client Team, this time on the subject of Inheritance Tax.

David, I always associate Inheritance Tax with landed gentry and Stately Homes.

It is a fair point. This tax, which has also been called Estate Duty or commonly Death Duty, was originally introduced to redistribute the inherited wealth of the few to the greater good of the population.

But I guess times have changed.

Indeed - the rise in living standards, pensions, investments and particularly house prices has substantially increased the number of people who may have to pay the tax

What is the threshold these days?

At this time (April 2010) an estate must exceed £325,000 before Inheritance Tax becomes payable, at a rate of 40%. It is interesting to note that this threshold was £100 in 1914, £2000 in 1946 and only £10,000 as recently as 1970.

In its own way, that little list of figures shows how times have changed, particularly in recent years.

It does, and bear in mind that, these days, the estate of a partner is not taxed when left to the surviving partner - this was not always the case and that is where the old stories of having to sell the family silver to keep a roof over your head originated from.

That really is interesting, however coming up to date, Inheritance Tax seems to be a hot political issue at the moment.

Yes, all the major parties have stated their intentions on Inheritance Tax but we are in the difficult position of having this discussion before the General Election. However, what we can do is give an update once we know the result of the Election and the fine detail of any changes.


That sounds like a good plan, so what are the key issues at this moment in time?

The first thing to say is that Inheritance Tax is a relatively complex issue; there are a considerable number of exemptions and exclusions, which will not effect the majority of people, but must be considered when planning how to reduce any tax payable. So it would be best to limit ourselves to general information which will hopefully alert readers that it may be appropriate for them to seek advice from a professional.

Fine, you mentioned that the threshold is £325,000?

It is. If the value of your Estate is less than that then no tax should be payable. Any excess over that figure is potentially taxable at 40%.

Seems straightforward……

It is, but how many of us actually sit down and calculate the size of our Estate? The result can be quite surprising when the value of savings, insurances, houses and even collections - of anything from fine art to model railways - are all added together.

So you would suggest that as the starting point?

I would - obviously you cannot come up with a precise figure but if you are getting anywhere near the threshold it is time to consider taking advice

But as we said before, no tax is payable if the estate is left to your partner?

Correct, but this only means a husband, wife or registered civil partner. The exemption does not apply to an unmarried partner.

If the first partner leaves everything to the surviving partner, could this not suddenly put them in a taxable position?

Yes, but there is something else relevant in these cases. If the first partner does not use all of their £325,000 exemption, the unused percentage can be claimed on the death of the second partner, which would presently mean up to £650,000 of an Estate could be free of tax in those circumstances.

Is that complicated to do?

Again, it is all down to planning. The extra exemption cannot be claimed until the death of the second partner, when certain documentation must be submitted relating to both deaths. It comes back to what we said earlier: if a quick calculation of your prospective estate suggests you are above, or near to, the £325,000 threshold, it is wise to seek professional guidance sooner rather than later

Is it not best to give it all away?

It is an idea but one with a number of pitfalls

Such as?

A person is free to dispose of their assets as they wish, but any gift made within the seven years prior to a person’s death will generally be counted as part of their estate for tax purposes. There are certain exemptions: for example, you can give up to £3,000 each year, either as a single gift or as several gifts adding up to that amount; also smaller gifts of up to £250 made to a number of individuals, and wedding presents given as cash, are potentially exempt. A further problem is that any reduction of savings may jeopardise future claims to benefits or for nursing care, which is a subject we could cover in a future article.

What about selling or giving away your home?

There are things that can be effectively done in this area, but they must be subject to serious consideration and planning. There can often be no Inheritance tax advantage in taking such action, and there can also be substantial tax implications for any beneficiary.

Any final points?

Yes, I know I keep coming back to it every time we talk, but the first and major step in Inheritance Tax planning is making an up to date and comprehensive Will - little can be achieved without that.

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Thanks yet again to David for his time, I am sure you will agree he is nothing less that consistent in his crusade to get us all properly “Willed”. We will be back in the next edition with a new topic to look at and, hopefully, an Inheritance Tax election update.

As ever, I must point out that this article is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.

Graeme Barber
Bowcock Cuerden LLP
01270 611106
Email: info@bowcockcuerden.co.uk