Inheritance Tax – A little planning can save you a lot of money - Don’t put it off until its too late! 

Richard & Hayley’s Story

Richard and Hayley had been married for many years and each had estates which, when valued together, were worth £780,000 in 2007. Hayley and Richard were both UK domiciled.

Richard died in May 2007 having made no lifetime transfers, so all of his assets passed across to Hayley. As the transfer of assets were between spouses, they were exempt from IHT.

Hayley died in June 2009 with an estate valued at £1.3m, again having made no lifetime transfers. Because of transferable nil rate bands, Hayley’s executors can now claim an increase to Hayley’s nil rate band (the nil rate band is £325,000 for the 2009/10 tax year). Since Richard hadn’t used any of his nil rate band the increase would be 100%. Hayley’s estate therefore has a total nil rate band of £650,000.

When this is applied to the value of her estate of £1.3m, the liability to IHT reduces

£1,300,000 - £325,000 = £975,000
40% of £975,000 = £390,000

£1,300,000 - £650,000 = £650,000
40% of £650,000 = £260,000

In this example, even when making use of the transferable nil rate band an IHT liability of £260,000 arises.

Unfortunately Richard and Hayley had not looked into IHT mitigation and as a result their heirs were faced with a rather large IHT bill.

A simple Whole-of-Life Protection Plan, written in Trust, could have provided the necessary funds to cover the IHT bill.

Various other IHT mitigation strategies could have removed the bulk of their assets from their estate, either immediately or over a seven year period, without depriving them and their beneficiaries of flexible access.

For further information see our Inheritance Tax Issues page .

If you would like us to calculate your potential IHT liabilty and discuss what options are best suited for your particular circumstances please contact us .

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