How Not to Lose out to Inheritance Tax Sheffield

Although an uncomfortable subject to think about, inheritance tax can make a substantial dent into what you would like to leave your families – Peter Lavery takes a look how to protect your estate.

Would your estate be left intact for your heirs, if something were to happen to yourself? Do you know where you stand in relation to inheritance tax? You don't have to be wealthy to be eligible - anyone with a home worth more than £312,000 is affected. And, as the average home price has tripled in value over the past ten years, now more people need to be aware of how to tackle inheritance tax.

To shed a more light on the subject, Peter Lavery of Lancashire law firm Vincents Laverys gives an overview of what you can do to minimise your liability.

Inheritance tax is the tax that is paid on your 'estate', i.e. everything you own at the time of your death, less what you owe. It's also sometimes payable on assets you may have given away during your lifetime, such as like property and money.

Inheritance tax only applies if the taxable value of your estate (including your share of any jointly owned assets and assets held in some types of trusts) when you die is above £312,000 (2008/9 tax year). It is only payable on the excess above this nil rate band, and is charged at 40 per cent.

Largely, Inheritance tax must be paid within six months from the end of the month in which the death occurs, otherwise interest is charged on the amount owing. Tax on some assets, including land and buildings, can be deferred and paid in installments over ten years.

Some top tips on reducing your liability for inheritance tax:

Do the sums

Work out if inheritance tax will affect your estate, by adding up the value of your savings, investments, property and personal possessions. Include personal equity plans (Peps) and individual savings accounts (Isas) - though they are tax-free during your lifetime - they form part of your estate for inheritance tax. Finally, take off the value of any debts.

Get married

Any assets you pass on to a spouse are free of inheritance tax. The same concession applies to same-sex couples who register under civil partnership laws.

Make a Will

This will set your intentions in stone as to who should get what. It will stop any assets being divided under the rules of intestacy, where even spouses are not guaranteed to inherit everything. It can also be the first step to reducing an inheritance tax bill.

Reduce your estate

You cannot be taxed on money that was never yours. So ensure that as much as possible is outside your estate. Write any new life insurance plans under trust.

Consider your 'home' status

The government has clamped down on schemes to get around the 'gifts with reservation' rules. These allowed people to give away homes, but still live in them. Now, income tax can be charged for living rent-fr...