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'How to save up to £114,000 of Inheritance Tax'
No Inheritance Tax is payable on the
first £285,000
of an individuals estate when they die, ( this known as
the Nil Rate Band ). Over this figure Inheritance Tax is charged
at 40%. There is an exemption that no Tax is payable between
husband and wife, so no Tax is payable on the death of
the first spouse.
In order to maximise use of both Nil Rate Bands, you need
to give consideration to writing Wills to direct an amount
equal to the Nil Rate Band into a trust for children or other
persons other than the spouse. The idea is to use both the
husbands and wife's Nil Rate Bands.
A Will giving everything to your spouse
does not therefore give rise to Inheritance Tax. You could
gift away up to £285,000
to other persons (ie children) without Inheritance Tax being
payable and give the rest to your spouse. The problem with
this is your spouse could be left in a differcult position.
If the money was placed in a Nil Rate Band Discretionary Trust
it can allow the spouse access to funds if necessary.
Therefore what happens is a legacy is payable on the first
death equal to the current Nil Rate Band into the Discretionary
Trust. Income can be paid to the surviving spouse or accumulated
for a period up to 21 years and added back into the capital.
The spouse can also remove capital from the trust fund.
Discretionary Trusts offer : Tax free status, access to funds
for the surviving spouse, Interest free loans repayable on
second death, protects the first spouses assets from any future
long term care requirements and guarantees assets pass to your
children rather than to your spouses new partner if they have
remarried.
Where possible you should try to make both spouses assets
as equal as possible so there is sufficient available to fund
the Trust. Joint assets do not pass as per the Will so cannot
be used for the Trust fund.
If the home is the largest asset
and is owned jointly as joint tenants it may be necessary
to change ownership to tenants in common. Although the property
would still be jointly owned, the difference is that on the
first death the 50% owned by that spouse can be used towards
the Nil Rate Band Discretionary Trust. The surviving spouse
can continue to own the property but the deceased's share
will be outside the surviving spouse's estate. There is a possibility
that Stamp duty land tax may be payable at the time of the
deceased's death but it will be considerably smaller than
the Inheritance Tax liability.
If both Nil Rate Bands are utilised
there is potential to save up to £114,000 of unnecessary
Inheritance Tax.
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