Inheritance Tax Planning
Shelter your family from the taxman
Inheritance Tax, as we know it today, arrived in 1986.
Inheritance Tax is actually little more than a re-branding of its predecessor, Capital Transfer Tax which, in turn, had replaced the earlier and rather more Draconian Estate Duty, which, in its day, had played a major part in turning many of Britain’s stately homes into amusement parks!
It is quite ironic that Inheritance Tax should have such a long lineage because it is, of course, one’s descendants who will suffer its effects.
The principal difference between Inheritance Tax and its predecessors is the fact that there is a general exemption for most lifetime transfers to other individuals.
This is part of the reason behind the accusations that Inheritance Tax is a voluntary tax, since simply giving all of one’s wealth away would initially seem to be an easy way to escape the tax altogether.
However, inevitably, as we will see later in this guide, Inheritance Tax is not quite that easy to avoid. You would have to survive for at least seven years after leaving yourself completely destitute (and homeless), for a start!
The HMRC website has a good basic overview of how uk inheritance tax operates:
Am I Wealthy Enough to Need to Worry?
Most people are quite surprised to discover just how much they are actually worth. How often have you heard someone say, “I’m worth more dead than alive”? Very often, especially as we get older, it’s true (in pure financial terms only, of course).
This is basically because it takes an enormous amount of capital just to support one person. When that person dies, the capital that was previously tied up in supporting them is freed. (After the Government gets its share of it, that is!)
Hence, although you may not feel particularly wealthy, you may still find that you have a large potential Inheritance Tax bill. You’d be amazed at just how many ‘paper millionaires’ there are these days.
Where Does The Tax Come From?
The statistics on the main sources of Inheritance Tax make interesting reading:
- 41% comes from people’s own homes!
- 26% comes from cash (including savings accounts, deposit accounts, etc.)
- 12% comes from quoted shares and securities
- The remaining balance comes from household personal effects, insurance proceeds and other land holdings
The top item on the list is the family home, which proves that this tax is not, as the Government would like to have you think, predominantly raised on the rich.
Admittedly, these statistics do pre-date the changes made in 2007, but it nevertheless remains true that Inheritance Tax is mainly derived from the estates of normal people whose only ‘crime’ is simply to have been careful with their finances all their life.
For more information: Inheritance Tax Planning