EACH week The Scotsman gives you a top ten guide to pertinent financial issues.
House prices might be falling, but thousands of Scots still face leaving loved ones with a burdensome inheritance tax (IHT) bill when they pass away. Grant Middleton, a tax partner in French Duncan, incorporating McCabes, based in Edinburgh, offers t
en tips on how to reduce or escape inheritance tax.
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18|| HAVE A WILL IN PLACEWithout one, there is no control over how your estate is to be distributed and you could end up with an IHT bill when this could easily have been avoided. Equally, and especially as life expectancy rates are increasing, prepare a Power of Attorney early and while still competent to prevent problems in the future. Accidents and health problems can strike quickly, by which time it could be too late.
||1716|| MAKE USE OF YOUR ANNUAL RELIEF AND EXEMPTIONSThese are £3,000 per person a year but you can only carry forward this allowance for one year, such that a £6,000 disposal every two years is exempt. You can also give away up to £250 to anyone as often as you like. But you cannot make a gift of a larger sum and then claim exemption for the first £250.
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14|| GIVE IT AWAYEach parent, including step-parents, is allowed to gift up to £5,000 to a child upon marriage or entry into a civil partnership and no IHT consideration arises. Grand parents can gift up to £2,500 and anyone else can gift up to £1,000. You have to make the gift on or shortly before the date of the wedding or civil partnership ceremony. It is also possible to combine the exempt gift on a wedding or civil partnership with the £3,000 annual exemption, thereby allowing each parent to make an exempt gift of £8,000
||1312|| SEVEN YEAR SAVINGSUp to £312,000 (£350,000 from 2010/2011) can be gifted every seven years as long as the person making the gift survives throughout that period. If the person making the gift dies in the period, the tax is clawed back; if death arises after three years there is a restricted rate of clawback.
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10|| CHARITY AND PHILANTHROPYGifts to charities are exempt from IHT, as are gifts made to your spouse or civil partner and some national institutions including national museums, universities and the National Trust. Also exempt are gifts to UK political parties should you be so minded.
6 INCOME GIFTINGGifts are exempt from IHT if they are made out of after-tax income, rather than out of capital, as part of your normal expenditure. By calculating annual income and expenditure it is possible to make an annual exempt transfer out of "excess income". If this is an option for you it is important to keep records to back up any claims.
7 TRUST IN TRUSTSCombining the seven years exemption with the use of a trust can still be effective despite the government's attempts to tighten up the regulation governing trusts, not least because they bear a lower rate of IHT. If structured properly then trusts can escape IHT entirely.
8 WHOLE OF LIFE COVERInsuring your life against IHT can be expensive and is most effective when, at a lower age, the premium payer can enter into an affordable, fixed premium, whole life insurance policy. Otherwise as one ages, premiums become prohibitive.
9 EFFICIENT PENSIONSA pension fund is liable to IHT if it has not been left to a spouse or a minor child.
In appropriate cases, it can make sense to use the fund to purchase an IHT insurance policy to avoid facing this extra
10 LAST RESORTEquity release or discounted gift schemes can mitigate IHT but equally can be damaging to the individual's financial situation so they should be considered, perhaps, only as an option in the absence of all other options.
