‘Inheritance tax?’ I hear you cry … ‘But I’m much too young for that.’ I have to disagree. If you die intestate (without a will in other words) then it doesn’t matter how old you are the government will slap 40% IHT on all your assets over £300,000 – and that includes your house. A lot of people get very angry about IHT, calling it a tax on death. The argument is that you’ve already paid tax on this cash in the form of income tax. Fair or not, there ARE ways to minimise your exposure.
So step 1 of your inheritance tax plan is to a solicitor and ‘MAKE A WILL’. It should only cost you a couple of hundred pounds) and it’s certainly MUCH cheaper than having all your assets swept up into a taxable lump. You can get DIY will kits from WH Smith and the like, but I’d strongly advise you use a proper solicitor here, as there are all kinds of complexities about personal relationships and ownership of property that can potentially trip you up.
Step 2 Give money away. No, I haven’t gone mad. You have a yearly tax-free allowance of £3000 a year to give to family and friends. In fact, as long as you live for seven years afterwards, ANY cash you give away should be tax free. It’s called a ‘potentially exempt transfer’. This, of course, favours the younger and fitter among us.
Step 3 Buy shares on the Alternative Investment Market or AIM. These are small companies, below the level of the FTSE share index, and they’re usually what is called ‘unquoted’, Being unquoted, they qualify for 100 percent IHT relief once the money’s been there two years. Get advice at www.aimquoted.com.
Step 4 Get married and transfer assets to your other half, then you and your partner can combine your zero-rate entitlement. But beware the word PARTNER … cohabiting doesn’t count. The ‘common law husband or wife’ which you hear people talking about is a myth, and has no basis in law. You have to be married or in a civil partnership.
Step 5 Put your cash into a Discounted Gift Trust. You can save on IHT the moment you open one and it then pays you a regular income until you die (or until the money runs out).
Step 6 Be Charitable. As well as giving you a warm self-satisfied glow, your donations are tax deductible. And you might be surprised at the organisations registered as charities. Whether public schools and political parties SHOULD be is another matter, but they’re in there.
Step 7 Put it in trust. You can have your money held and administered by a trust while you’re alive – though this is a complicated one and you will need expert advice. Go to www.step.org.
Step 8 Buy tax free assets, including farmland, woodland and businesses. You can then pass these on to spouse, children, grandchildren or whoever, free of inheritance tax.
But before you do ANY of this, get expert advice. Some of these are simple, but some are very complex, so don’t go it alone.
