Avoid the 40% voluntary tax on your assets

Having worked all your life to build up assets for which you have already paid income tax, capital gains tax or VAT, it can seem unfair that, when you wish to secure financial peace of mind and pass wealth on to your family, you face a further tax on your accumulated wealth upon death. Nevertheless, this “double” taxation does exist and inheritance tax (IHT) at 40% applies to all estates over £325,000 in value.Having to pay inheritance tax at such a high rate often has disastrous consequences for families and can lead to a very substantial reduction in the value of your estate. An unexpected inheritance tax bill may mean that assets which could otherwise have remained with the family, need to be sold off quickly. Such a forced sale may come at a difficult time and result in letting the assets go at less than full value. Conversely, if the assets in question are not easily sellable, IHT tax can have a particularly devastating effect – substantial borrowings might be needed and these may be difficult to service.

Whilst inheritance tax can create financial problems and anxiety for your family, it is an almost entirely voluntary tax and there are opportunities for you to reduce these problems now. Added to this, due to the current dearth of tax revenues flowing into the Treasury, it is possible that current tax rules will be further tightened. This may mean the tax rate increased from 40% to an even higher level and planning opportunities to gift assets or create trusts further reduced by the return to a tax on lifetime gifts as we had some years ago.

It is frequently said that IHT is a purely voluntary tax and that only the negligent or ill-advised need face effective taxation on their wealth. Given the realistic possibility of future changes to the IHT rules,we at Robert James Partnership feel that now is a good time for everyone to mitigate their potential inheritance tax charge. Specialist advice and sensible tax planning can reduce, if not eliminate, the tax burden and alleviate any difficulties the liability might otherwise cause.

A small amount of IHT planning can reduce the inheritance tax exposure to your estate by a considerable amount. Although this is not a comprehensive list, sensible tax planning steps can involve:

• Ensuring you are maximising reliefs and exemptions to minimise the ultimate liability;
• Tax effective and flexible Wills;
• Lifetime giving, while ensuring the associated capital gains tax implications are minimised;
• The use of trusts, to retain a degree of control while removing assets from your estate;
• Moving ownership of assets around the family for greater tax effectiveness;
• Tax planning arrangements in connection with the family home;
• Avoiding pitfalls such as the gift with reservation of benefit provisions; the pre owned assets rules and the new rules relating to trusts;
• Tax planning and the professional business;
• Succession planning for the family business.

RJP are going to be having a special IHT Planning “surgery” to discuss planning ideas with our IHT specialist Peter Legg. He is a specialist IHT professional and has since been advising high net worth clients and professional advisers on estate planning and trust taxation for 25 years. As a renowned expert in his field, Peter presents at IHT seminars across the UK and works closely with RJP on inheritance tax problems that arise for high net worth clients. IHT surgeries will be taking place throughout the day on the 20th and 28th September 2011.

If you would like to reserve an appointment, please email me at las@rjp.co.uk or telephone Annalis Jovinsdotir to arrange a time on 0870 2255220.

Posted by Lesley Stalker