Mitigating Inheritance Tax

Tax Avoidance should not be confused with Tax Evasion! Taking proper steps to avoid tax is perfectly legal, but Tax Evasion is illegal.

Denis Healey, a former chancellor, once said “The difference between tax evasion and tax avoidance is the thickness of a prison wall.”

That statement confirms earlier rulings about the individual's rights to construct their affairs as tax efficiently as possible:

“…every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. ” Lord Tomlin, IRC v. Duke of Westminster (1936)

How do you mitigate Inheritance Tax? Contact Ashwood Law to find out more

Wills and Trusts. Often the first step can be to write a Will . This may involve the use of Trusts. Trusts are not just for the really wealthy. Find Out more about Wills and Trusts.

Change ownership of your home. Couples usually both own the entire property jointly. It may be advantageous to change ownership so you each own half to become tenants in common.

Equalise your assets. Holding most of your cash, savings and assets jointly or in one partner's name may mean the other person cannot use their Inheritance Tax allowance in a Will.

Gifts and Legacies.
You may be able to mitigate some Inheritance Tax liability with gifts and legacies, but there are strict rules for this.

Put life insurance in trust. Life insurance automatically pays your beneficiaries without Inheritance Tax liability if it is held in Trust.

Make sure your pension is written in trust. Employers' pensions are normally written in trust. This means that a death-in-service lump-sum payment passes directly to a widow or widower and does not affect IHT but may be subject to income tax. You should consider placing personal pensions in trust as this may be more tax efficient.

Tax-efficient investments. There are some investments that may be free of IHT if they have been held for over two years. However, these are not suitable for everyone.

Potentially exempt transfers (PETs). PETs are gifts of assets, cash or property made before you die. If you survive the gift by seven years they become IHT-free.

Discounted gift schemes. Single premium life policies paying an income for life may assist in freeing you from IHT. However, these can be challenged by the HM Revenue & Customs if not arranged correctly.

Set up a property trust. If you own a home, it may be possible to set up a Trust, so that you can give away your share of the family home safely. But there are stringent rules for doing this.

Ashwood Law LLP, Ashwood Law House, Newton Road, Heather, Leicestershire LE67 2RD Email: iht@ashwoodlaw.co.uk Ashwood Law is a trading style of Ashwood Law LLP which is authorised and regulated by the Financial Services Authority. Ashwood Law LLP is entered on the FSA register No 400049 at www.fsa.gov.uk/register. Ashwood Law LLP (Limited Liability Partnership) is registered in England & Wales 0C307289, registered address as above. The Financial Services Authority does not regulate Taxation and Trust advice and Will Writing. The levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The guidance and/or advice contained within the website is subject to the UK regulatory regime and therefore is primarily targeted at customers in the UK. .

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