Inheritance tax is applicable to many people in the United Kingdom and applies to the ownership of their worldwide assets, to include their prime residence.

Inheritance tax applies on assets exceeding £312,000.00 (tax year 2008/09) at a rate of 40%. Below this figure is known as the ‘nil rate band’.

There are opportunities to reduce taxable estates. For couples owning their prime residence in joint names (joint tenants) they should consider ‘tenants in common’. In this manner two ‘nil rate bands’ are utilised on death (£624,000.00).

Assets (to include cash deposits) can be gifted and providing the person making the gift lives for seven years from the date of making the gift, that ‘gift’ is deemed as outside of that person’s estate. Thus inheritance tax does not apply. This is known as a potentially exempt transfer. (PET).

It is extremely important for individuals to make a Will and review their Will regularly. If a Will has been made then probate applies, if a Will has not been made then Intestacy applies. It is not always true that if a person dies intestate, their estate will pass in its entirety to another person such as a spouse. Professional legal advice should be sought.

There is an ‘IHT’ efficient strategy for investors who want to keep control of their investments for capital growth and / or income without making an outright gift. A capital sum is invested and placed into a ‘Trust’. This commences the seven-year potentially exempt transfer period. After seven years, the value of the investment is outside the investor’s estate. During this period the investor can take income from the investment and for the remainder of their life if so required.

A number of individual trusts include ‘discounted gift trusts’. In this manner the investor receives a discount on the value of their investment. As such the investment value is reduced (sometimes significantly) and inheritance tax liabilities are reduced immediately. Further information can be obtained from the Her Majesty's Revenue & Customs website.

This investment strategy can be undertaken in the United Kingdom or tax efficient offshore locations. (See the page on International Investment for further details).

For further information contact us.