John Elliot looks at possible ways to reduce your Inheritance Tax bill.
Share values and house prices have fallen dramatically in the last 18 months and this represents a real Inheritance Tax (IHT) saving opportunity for people who want to give assets away.

The best way of reducing Inheritance Tax is to make gifts of assets (to give things away). However, in the past it has been difficult to do so because of Capital Gains Tax (CGT) issues. Currently, on estates of over £325,000, 40% is payable as IHT. Some payments are exempt, such as gifts up to £3,000 a year together with certain other types of gift e.g. gifts in contemplation of marriage.

If someone gives away shares then they may be subject to CGT when the gain is more than £10,100. Tax is payable on this at a rate of 18%. With the considerable reduction in asset values it may be possible to give away shares at a very much reduced CGT penalty, or without paying it at all.

It is, however, vital that the donor does not continue to enjoy any benefit from the asset given away. If the donor does continue to use or enjoy it, the whole Inheritance Tax saving is negated.

Another way of saving Inheritance Tax is to make gifts from surplus income. Gifts above the annual exemption (£3,000) are normally Potentially Exempt Transfers. The donor has to survive 7 years before they are removed from being aggregated with the remainder of their estate on death. But surplus income, if given away regularly and under a commitment to do so, is normally exempt whatever the amount is. However, it is very important to document the whole series of gifts to be able to demonstrate that the income is, indeed, surplus to requirements.

Finally, only give away assets which you definitely will not need in the future. The first rule of inheritance tax planning is to have enough to live on and under your own control for the rest of your life!
For more information on Inheritance Tax, or any other Private Client matters, please contact either;

John Elliot E: rje@lindsays.co.uk T: 0131 656 5651

David Campbell E: davidcampbell@lindsays.co.uk T: 0141 302 8441