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Tax planning

When you put your affairs in order, tax planning should be high on the list. Damon Parker, partner of leading private client law firm Harcus Sinclair, gives some advice.

Inheritance tax

Part of your 'exit strategy' should include reducing the tax paid on your death - inheritance tax.

Inheritance tax can do a lot of harm to those who you want to benefit significantly from your wealth, your hard work, your family’s fortune passed down the generations.

500 Euro Gift

Why? Because inheritance tax will take 40 per cent of it above the £325,000 nil-rate band.

So read on and take the necessary action before it is too late!

Inheritance tax - current situation

On your death, you are treated as making a final transfer of the whole of your estate.

In broad terms, there is no inheritance tax to pay if your estate is worth less than the nil-rate band, currently £325,000; above that amount, tax is payable at 40 per cent.

The amount of inheritance tax charged on the estate will, however, depend upon the total of any Chargeable Lifetime Transfers and Potentially Exempt Transfers (PETs) made within the previous seven years.

Mitigating the tax burden

It may be possible to reduce the amount of tax that will have to be paid.

Tax planning is a very individual process and any advice would take into account where you live, your assets (including the assets’ location), your family circumstances and your financial history.

A brief summary of the main exemptions and reliefs are as follows:

1. Lifetime exemptions:

  • Annual transfers up to £3,000 per annum (any unused amount can be carried forward for one year only);
  • Small gifts to the same person, up to a total of £250 in a tax year to any one person;
  • Gifts in consideration of marriage: up to £5000 may be gifted by each parent, £2500 by each grandparent or by one party to a marriage to the other, or £1000 by anyone else;
  • Normal expenditure out of income (taking one year with another, occurs regularly and does not reduce the donor’s standard of living).

2. Exemptions applicable to lifetime transfers or on death:

  • Transfers between husband and wife and civil partners. Such transfers are fully exempt if both partners are domiciled in the UK. If the transfer is to a foreign domiciled partner it is limited to £55,000;
  • Gifts to charities;
  • Gifts to political parties;
  • Certain transfers of heritage property;
  • Maintenance funds for heritage property; and
  • Transfers of business and agricultural property (relief of up to 100% is available subject to certain conditions).

Wealth structuring through the use of trusts

The Finance Act 2006 changed the way that trusts were taxed, essentially increasing the tax burden so that the scope for saving tax by way of trusts is now severely limited.

As with all financial planning, specialist advice is required. My Last Song is an agreed introducer to St. James’s Place Wealth Management PLC who are authorised and regulated by the Financial Services Authority and are one of the country's leading providers of wealth management advice.

For more information, visit Financial Planning For Older Age.

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