Fiducia Wealth Management
Posted in Guest Editor, Inheritance Tax on 02.12.11

Jamie Hooper – Hooper & Co.

When, in 1719, Christopher Bullock wrote “‘Tis impossible to be sure of anything but Death and Taxes” I doubt he could have foreseen to impact one would have on the other three hundred years later.

While for some Inheritance Tax, or IHT, is simply an issue for our beneficiaries once we are gone, for the majority we want to see our estate distributed to those most important to us and not to Her Majesty’s Treasury.

So how can we maximise the wealth available for distribution?

Put simply the most tax efficient option is often to give your wealth away before you die.

Unless the transfer of wealth is to a trust, IHT is only applied to the value of the estate on death and to a lesser extent, to any transfer of wealth made in the seven years prior to death, so, any gift made earlier than seven years before the date of death is outside the scope of IHT, regardless of size.

One word of caution on giving away wealth. Any gift must be genuine and without any retention of benefit to the donor, which means that giving that rare painting to your children but leaving it on the wall of your own home will not be an effective gift for IHT and will still be chargeable to IHT on your death. The same rules apply to cash gifts if those funds are later used to acquire an asset to which you benefit so care must be taken to track the use of cash gifts, particularly in later life when you might rely on the original recipient, usually your children, to support you.

Transfers made with in the last seven years before death may still be exempt from IHT if they are covered by one of a number of tax exemptions which include; an annual exemption of £3,000 per annum, wedding gifts/civil partnership ceremony gifts up to £5,000, small gifts up to £250, and more usefully regular gifts or payments that are made out of your normal income for example monthly payments or regular gifts for Christmas and birthdays.

In the event of death, where your estate is in excess of the ’nil rate band’ in force at the date of death (presently £325,000), subject to exemptions and reliefs the excess value of the estate will be subject to IHT at 40%, the ’nil rate band’ being taxed at 0% .

Where the deceased is a widow they are entitled to any unused ‘nil rate band’ of the previously deceased spouse such that on the second death the ‘nil rate band’ might be as high as £750,000 at current rates.

Not all assets held at the date of death of are immediately subject to the full IHT charge and many benefit from exemptions and special reliefs which act to reduce or extinguish the charge including an interest in a business partnership or family company shares, land and machinery used in a business, agricultural property, woodland timber and certain works of art of national importance. Provided sufficient notice is given estate tax planning might include the conversion of non qualifying assets to those listed above.

Trusts may also be useful vehicles for further IHT planning by taking assets outside the estate of the deceased although recent changes to tax legislation has made trusts less attractive and their formalities mean trusts are only of practical use to the larger or more complex estates.

Every estate is unique and each requires a balanced approach to tax planning to meet the needs of both the donor and potential beneficiaries but the sooner plans are in place the greater the options available.

It is impossible to be sure of anything but Death and Taxes.


Jamie Hooper is a Chartered Tax Adviser at Hooper & Co.


e: [email protected]
t: 01206 768538


The views in this article are those of the contributor and do not necessarily represent those of Fiducia Wealth Management Ltd. If you would like copies of any of these articles please contact our  Gordon Kearney via email at [email protected] or via the post at Fiducia Wealth Management, Dedham Hall Business Centre, Brook Street, Dedham, Colchester, CO7 6AD.

Fiducia Wealth Management
Posted in Guest Editor, Inheritance Tax on 02.12.11