Inheritance Tax Planning

"If it works for Joe, it'll probably work for me." More than half of the people who come to The Willwriting Partnership contact
us after a personal recommendation from a neighbour, friend or family member. We don't write wills for horses, but if we did,
this is what the horse's mouth would sound like:
- Gifts made to one’s spouse or civil partner during their lifetime
- Gifts made to charities. (Foreign registered charities normally don’t qualify)
- Gifts made to political parties.
- Dispositions for the national interest – for example to The National Trust, The National Gallery, the British museum, Colleges, Universities etc.
Tax relief also applies in the case of married couples and civil partners, in that no Inheritance Tax is paid on the transfer of
assets between spouses/partners on first death. Furthermore, on the death of a spouse/civil partner occurring after 9 October
2007 any ‘Nil Rate Band’ allowance unused on this first death is transferable to the survivor’s estate on second death,
meaning on second death there could be currently as much as £650k tax free allowance before tax is paid. Where a spouse
is domiciled outside the UK, the transferable allowance is limited

Please note: Couples in an informal relationship do not qualify for the married couples/civil partners relief and should therefore
take steps to mitigate the Inheritance Tax payable, for the sake of the surviving partner as well as for their children and other
beneficiaries.

Any number of individual gifts, worth up to £250, made during the year to different persons (this relief is in addition to
the annual allowance of £3,000).

Gifts, up to a specified maximum, given to the bride or groom, in consideration of marriage. Parents can each give up
to £5,000; grandparents may give £2,500, as may the bride or groom. Anyone else may give £1,000. Parents can make
gifts to either party in the marriage; so that, say, a bride’s parents could each give £5,000 to their son-in-law. Gifts
should be made so that they are conditional upon the marriage taking place.

Other gifts, which do not fall into any of the categories above may also qualify as “Potentially Exempt Transfers” (PETs).
To qualify as exempt, gifts have to have been made by the living donor seven or more years previously. This is known as
the `seven year rule`. If the individual dies during this seven year period, the PET becomes a chargeable transfer, and its
recipient becomes liable to pay the tax charged on it. Of course, whether IHT is charged on the gift in practice would depend
on the value of the donor’s estate at death, and whether both gift and estate came to more than the zero-rate (NIl Rate
Band) threshold.

It is important to remember that, when assessing the value of the deceased’s estate, the tax authorities include gifts made by
the deceased in the last seven years of his/her life. Consequently, even though someone’s wealth may be less than the
zero-rate threshold when they die, their estate may still be liable for IHT, since the inclusion of PETs made in the previous
seven years may push it over this threshold. The tax payable on the estate depends on the rates of IHT in force at the date
of death. It is the recipient of the PET who is liable to pay the tax. The operation of this rule can penalise those who wish to
pass on assets to family members or other beneficiaries, but have not done so before death intervenes.

There is provision to reduce the tax charge that would be imposed on PETs, if these PETs are made between three and
seven years before the donor’s death. Taper relief, as it is called, is only given to mitigate the inheritance tax charge that
would be made on gifts made after this period of time has elapsed. For this purpose, gifts are considered before the rest of
the estate. If these gifts fall below the tax-free threshold, they would be tax-free in any case. If so, the estate is not eligible
for taper relief at all, even if the total value of the donor`s estate at death - gifts included - is above the tax-free threshold.

Relief is available as a percentage reduction in the tax payable on the gift itself; the nearer the donor is to surviving seven
years after the gift, the greater the relief. See below the years between transfer and death and the corresponding percentage
reduction in tax payable: -

0 - 3 0 %
3 - 4 20 %
4 - 5 40 %
5 - 6 60 %
6 - 7 80 %

Inheritance Tax is a complex subject and as well as the relief mentioned above, there are a number of other reliefs that are
available, particularly through the creation of Trusts (see Trusts). Additionally, further relief can be available in certain cases
for Business and Agricultural Property, and property owned abroad by a non-domiciled person living in the UK.

It is worth mentioning that the net assets left in a person’s Will, do not necessarily represent the full assets of that person
when assessed for Inheritance Tax. For example, on death, property that is jointly owned automatically passes to the
surviving joint owner or owners and is not disposed of by the Will. Equally, assets of a trust that the deceased had a life
interest in, could be assessed for Inheritance Tax, but the assets would pass automatically to the ultimate beneficiaries.

Inheritance Tax planning is paramount when making a Will, if the value of your estate is above the Inheritance
Tax threshold. This however, is a subject that may require very individual consideration and is not a subject therefore
where general assumptions should be made

Before leaving this subject, it is worth noting that full Inheritance Tax Planning often involves other parties - particularly financial advisers and accountants. We are neither, but we will work with your existing advisers, or can put you in touch with advisers if you need us to, so that you have a comprehensive plan in place to minimise tax and maximise the estate that is passed to your chosen beneficiaries.

With that said, it must be made clear that we will not step on the toes of the relationships you already have! We have no desire to steer you away from people that you know and trust. On the contrary, we are always on the lookout for new partnerships with good quality financial advisers and accountants. Working together, with your best interests at the center, we can work out the best plan for you.