Monthly Archives: September 2012

Restrictive Covenants – buyers beware….

An Englishman’s home has always been considered his castle.  However, homeowners and prospective homeowners beware – your castle may have been undermined by others. Most people are familiar with the need to obtain the consent of the local authority before … Continue reading

Posted in Uncategorized | Leave a comment

William Cowan; Solicitor; STEP Practitioner

Image

“Will the government get its hands on my house and money when I die?”  Two issues arise for those who have earned and built up an inheritance to leave to their children and grandchildren.  First, inheritance tax (IHT) may be charged on your estate when you die.  Second, if in old age you need long-term care you may be required to pay for the costs, using up some of what you hoped to leave to the next generation.

It is important for you to have specific advice tailored to your and your family’s individual circumstances.  In this article I will give an introduction to IHT. 

IHT is a tax that applies to your estate (meaning everything you own on your death), if the value of your estate is above the IHT threshold at the time.  The threshold is currently £325,000 and the rate of IHT is 40% of the value of your estate above the threshold. For example, if your estate is worth £400,000 the IHT could be £30,000 (40% of £75,000). However, if you are married and leave your estate to your spouse, “spouse exemption” will apply and no IHT will be payable however much you leave.  The IHT threshold on your estate will be unused.

In October 2007 a new rule came in which applies if you are widowed and inherit from your spouse.  The IHT allowance which was unused on the first person’s estate (because the spouse exemption applied) could be claimed in the future against your estate – potentially doubling the IHT threshold on your estate.  In other words, your family could now inherit up to £650,000 free of IHT.  However, to be sure about your own situation, you must get individual advice.

What if you inherit from a parent or uncle or aunt, and the value of what you own is now significantly above the threshold level?  If you would like to give away some of what you have inherited, you should consult a solicitor about making a “deed of variation”, to make sure that what you give away is not subsequently caught by IHT.  If you inherit from your spouse and wish to make a gift to your family, again you should consult your solicitor about the best way to do this.

Generally speaking, if you give away more than £3,000 in a single tax year and die within seven years of doing so, the value of the gift would have to be added back into your estate for working out IHT.  So if you have in mind making a substantial gift to your family – the sooner may be the better.  But trying to save IHT by giving away your home is unlikely to be successful (except in certain specific circumstances).

If your estate is significantly above the IHT threshold, another step may be to talk to an independent financial advisor in consultation with your solicitor.  Certain investment products may offer IHT planning advantages.

If you support a charity, any share of your estate that you leave to charity will be free from IHT and, if the share is 10% or more, the rate of any remaining IHT on the rest of your estate will be reduced to 36%.

Finally – have you made a will and is it up to date?  If you are in a relationship but unmarried, a carefully constructed will is particularly important; also if you have an interest in a business, or a share in someone else’s home. But whatever your circumstances, the value of having a clear and legally effective will that implements your wishes cannot be underestimated.”

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

Continue reading

Link | Posted on by | Leave a comment