Estate planning
Many people
spend most of their life working hard to build up a nest egg
by careful saving and investment. They often own their house
and do so in order to provide a comfortable retirement and perhaps
even a gift for their children. What they are often unaware of
is the fact that even though the money / property are theirs,
the State can apply tax on the beneficiaries after their death
and should they require care in later life and they have a modest
estate, they will have to meet the costs of most of their care
by realising the value. Please see our Long Term
Care page
for details of this.
Inheritance Tax
Quite simply,
by the fact that the current Inheritance Tax legislation means
that any individual/couple leaving more that £300,000 to
their dependants are subject to a 40% tax on the excess.
For example,
if you owned a detached property valued at £423,889* with
contents and a car at an approx value of £45,000, investments
of £50,000 and £20,000 in bank accounts and you wished
that your two children should inherit your estate upon your death,
this could leave them with a potential Inheritance Tax liability
of £95,555 before probate was granted on your estate. The
taxman would be taking nearly 20% of this estate before the dependants
were allowed to touch it!
How
it works:-
| Value £ |
|
| 423,889 |
House* |
| 45,000 |
Contents / car |
| 50,000 |
Investments |
| 20,000 |
Cash |
| 538,889 |
Total estate value, less £300,000 the nil
rate band for 2007/2008 ** |
would leave
£238,889 which could be potentially subject to Inheritance
Tax at 40% i.e. £95,555.
In summary,
if you are prudent with your monies, pay your taxes, and build
up an estate of above £500,000 you could still pay nearly
20% of its total value in Inheritance Tax.
This is where
careful estate planning comes into its own. By simply applying
a bit of forward planning, such as making sure your last will
and testament divides your estate utilising all of the individual
tax allowances and putting investments into trust, the above
estate could have potentially avoided all Inheritance Tax (IHT).
One way of
reducing the liability is to gift money during your lifetime.
This is possible, but may still give rise to a tax charge should
you die before 7 years have elapsed after the gift. Tax is charged
as for IHT, but at the following sliding scale of the full amount:
Years
before death
|
%
of Death Duty
|
| 0 -3 |
100 |
| 3 - 4 |
80 |
| 4 - 5 |
60 |
| 5 - 6 |
40 |
| 6 - 7 |
20 |
| More than 7 |
0 |
Lewkay Financial
Services can give you impartial advice. If you wish to know more
about Inheritance Tax, or have any questions regarding Inheritance
Tax please contact us via the questions section of our secure
enquiry
form.
IT COSTS NOTHING TO ASK AND THERE IS NO OBLIGATION.
* average semi-detached property price in Greater London 22nd
November 2007 -
http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/regions/html/region10.stm
** Inheritance
Tax level on estates up to £300,000 is nil-rate ( i.e.
no tax due) and 40% on excess for the year 2007/2008. Levels
and bases of, and reliefs from, taxation are subject to change
and their value depends on the individual circumstances of each
investor.
Lewkay
Financial Services
3c Sopwith Crescent, Hurricane Way, Wickford SS11 8YU
* Tel: 01268 762200 * FAX: 01268 762292
Authorised and regulated by the Financial Services Authority
