Inheritance Tax & Trusts

Inheritance Tax, or IHT, is considered a voluntary tax* as it can be avoided.

The obvious (but not necessarily the most palatable) way to avoid the tax is simply to gift your assets away during your lifetime, after all if you have no assets, you (or rather your heirs) cannot be taxed on them once you have passed away (NB as long as the gift was made at least seven years before you died!).

Now, gifting is one option but, as I said, not the most appealing for many for obvious reasons so, what are the alternatives?

There are many to consider and, as with all things in life, some will make more sense than others as you will have a different perspective than the next person so which ones are right for you?

First you need to ask yourself some questions. Questions such as

  • What are the current exemptions/reliefs available and are you utilising these to the maximum where you can?
  • If you are considering gifting an asset, or assets, are you certain you will not require access to it, or them, in the future?
  • Consider how you feel knowing that once made the gift could be spent; sold or given away and you could do nothing to prevent it as you would no longer own or control it.
  • Again consider how you feel knowing that the asset gifted is immediately part of the beneficiary’s estate in the event of their death; divorce or bankruptcy again complete loss of control for you.
  • If this is not such an appealing scenario, would you like to retain some control over how and when the gift is used?
  • Would you like to retain an income but not the capital?
  • Would access to capital be required as well?

As I said, there will be many questions and many differing scenarios to consider depending on your own circumstances, so in the first instance it makes sense to arm yourself with some basic knowledge around Inheritance Tax Rules.

* The FSA do not regulate tax advice

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