subject: Can You Legitimately And Legally Reduce The Tax Payable Under The Current Inheritance Tax Rules? [print this page] None of us like to pay unnecessary tax, so why will UK residents contribute unnecessarily nearly 2bn in 2010 to the Government as a result of poor inheritance tax (IHT) planning. According to the annual Tax Action report by unbiased.co.uk this is exactly what will happen this year. So what can you do to make sure that you do not contribute unnecessarily?
Lack of IHT planning provision represents the second biggest tax wastage area in the UK according to the research and this is likely to worsen, as IHT Nil Rate Band remains frozen at 325,000, rather than rising in line with inflation.
Vast sums are paid to HR Revenue & Customs and are thus lost from estates every year because individuals had not made adequate provision to avoid or mitigate IHT. Such situations can only bring additional unwelcome stress for the deceased's family at an already difficult time, as this tax must be paid before the estate assets are released to beneficiaries. An integral part of IHT planning is having an up to date Will as this will allow you to make provisions which can be tax efficient and ensure that beneficiaries each receive an inheritance that is not reduced unnecessarily by a liability to IHT.
If your estate is likely to exceed the current nil rate band limit for IHT with correct legal advice you can eliminate or reduce the potential liability. This could include careful IHT planning written within your Will including items such as Life Time Gifts, Transfer of a deceased spouse's unused nil rate band allowance or maybe the establishment of Family Trusts. With the average UK house price in the region of 240,000 estates often exceed the nil rate band when savings, investments and the proceeds of insurance policies are added.
Whilst it is always best practice to use careful IHT planning in advance, it is sometimes possible in certain circumstances for an IHT burden to be reduced by a Deed of Variation to a deceased's Will after the death has occurred. This is usually when a couple who have made wills die within two years of each other.
Whereas you might assume that there is no way to reduce the inheritance tax that will be payable by your estate, this is not the case. It is quite possible, using the current legislation and inheritance tax laws, to legitimately reduce the amount of tax payable. With many people seeing IHT as a tax too far as people have already paid income tax when earning the money originally, it makes sense to ensure that you limit the amount of IHT payable to the smallest amount possible.
