Inheritance Planning

Inheritance planning might seem unnecessary if you're still decades off retirement, but it is a prudent move - particularly when you consider that if you don't make any alternative provision for your assets, the government could get the lot.

Even if you do plan, there is a chance that your assets will be taxed - but only above a certain level. Inheritance tax (IHT) is basically a kind of death duty - it's a tax levied on your assets when you die - and paid by those who inherit. The current threshold for IHT is £275,000 per person, so if your assets exceed this when you die, a tax of 40% will be levied on everything above that level. The £275,000 threshold might sound a lot - but not once you have included the value of any property. The average price of a house in the UK is now about £150,000 (it's closer to £250,000 in London), which doesn't leave much space to get in under the IHT threshold. Transfers between husband and wife are not liable to inheritance tax, but when the surviving partner dies, the tax kicks in at the 40% rate.

Strategies for beating the taxman

The first thing to think about is to write a will. Having a will does not in itself make any difference for tax purposes, but it does ensure that whoever you want to get your assets will get them. If you want to leave money to your favourite charity, you should say so in your will. Otherwise no one will know what your wishes are. You can pick up a DIY 'will kit' in most high street stationery shops. These can cost as little as £10 but you get what you pay for, the kits are basic and if you make a mistake it could prove serious later on. If you have more complex affairs you should seek appropriate advice. Most solicitors provide will-writing services and for around £100 you get complete piece of mind.

Potentially exempt transfers

You don't have to wait until your death before your friends and relatives can benefit. Gifts made during a person's lifetime are known as Potentially Exempt Transfers (PETs). Most gifts are exempt from inheritance tax as long as they are made to individuals more than seven years before your death. If you want to give something away in terms of ownership but carry on using it, this may not be considered as a gift for IHT purposes and it will be taxed after your death as though it hadn't been given away at all. It is important to seek advice from the Inland Revenue, a qualified accountant or other professional agent.

Further information can be obtained from leaflet IHT14 and in the Guidance Notes IHT2, both which are available on the Inheritance Tax area of the Inland Revenue's website.