The amount before which a person pay’s inheritance tax (IHT) on their estate goes up from the current £300,000 to a new figure of £312,000 from the new tax year, early April 2008 and is valid until the tax year ending in 2009.
This is an increase of 4% over the current nil tax band. While many consider the UK’s property market to be in a slight ‘falling’ situation at present and others threaten that it might collapse all together, there are still many places that will show an increase of over 4%. For those people, the increase in the IHT nil rate band (as it’s technically called; it’s not a tax free allowance but a band of tax where the rate is nil!) will not cover their increased property values.
For many years now we’ve all seen our current government tax ‘ordinary’ people in the UK as property prices have increased quicker than the IHT band. The government has seen this as a handy way to create another level of tax payers across the UK. It used to be a tax for the rich; it’s now a tax for a large slice of the population.
The government has informed us that in future years the rates will be up to £325,000 in 2009/2010 and then £350,000 in 2010/11. A married couple (and civil partners) has the facility to transfer the unused tax savings so they collectively benefit from double the current rate. It’s a 40% charge on anything over the nil rate band. With the average property value being close to £200,000 across the UK (but also note that in many cities and anything south of Watford the figure is already at the IHT nil rate band level – Londoners beware – you’re sitting on an average property already over two IHT nil rate bands!) those tax bill are not far away.
Lifetime transfers should be completed with no interest in possession (you can’t give something away and then continue to use it). You need to give the possession away and then live seven years to escape tax. This is to stop you giving anything away when you know you’re into your last few years/months. If you give an asset away and don’t live three years then the tax is at a 100% rate of the tax usually charged (currently 40%). If you live all the way to year 6 then the tax is reduced by 80%.
With property prices expected to rise above the IHT nil rate band (generally, over the years) people should always look at the amounts you can give away tax free when connected to business, agriculture, gifts for weddings, gifts to grandchildren, gifts out of income that form normal expenditure, political parties (but presumably only to those who are going to increase the nil rate band sensibly or end it like many other countries have done so) or more importantly, whatever you leave to a charity is free of IHT. That’s better than paying any tax.
IHT planning is still an important part of all of our futures, whether we like it or not. Talk to an expert is always our clinical view. Don’t listen to hearsay at the local pub or coffee shop. Your situation may be different to that of your friend. Decisions should be based upon your circumstances only. Get your will writing up to date as soon as you can.
Filed under: Legal Advice
Leave a Reply