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IHT planning

From 6th April 2009, the inheritance tax threshold is £325,000 for an individual (£312,000 for 2008/9). Where one partner (marriage of civil) has already died, the unused portion of their inheritance tax allowance at the date of death is transferable to the second to die.

In practice this means that if both partners were to die during the same year, the allowance on the second death would be £650,000 less the value of any gifts made by the first to die (other than to the surviving partner.) Had the first partner died in a previous tax year, the value of any gifts made other than to the surviving partner is deducted from the then current inheritance tax threshold.


















An example of how it might work

A married couple, Charles and Audrey, had a combined estate of £1,500,000. Charles dies in May 2007 leaving £150,000 to his children and the balance to Audrey. Her estate is now £1,350,000 and no inheritance tax will have been due as the gift was below the then threshold of £300,000.

Audrey died in late May 2009, leaving everything to the children. The inheritance tax due is calculated as follows.

Value of estate: £1,500,000 (allowing for some growth since Charles died) 

Inheritance tax threshold £325,000

“Transferred” inheritance tax allowance: £300,000 less £150,000 gifts £150,000, so 50% of the allowance was unused 

Net estate liable to inheritance tax is £1,500,000 less £325,000 less 50% of £325,000 = £1,012,500

Tax @ 40% £405,000

It is important to note that the “transferable” relief does not apply to co-habiting couples

Yet there are ways of minimising inheritance tax that do not fall foul of the changes. Some of these include:

· Making use of Exempt gifts, including £3,000 a year per donor, gifts on marriage, gifts out of income and the small gifts allowance of   £250 per recipient; and

· Making use of Potentially Exempt Transfers (gifts made more than seven years before death).

We can advise you on strategies to help you minimise the impact of inheritance tax on your estate and ensure that your family receives as much as possible of the money you have built up during your lifetime.

THE FINANCIAL SERVICES AUTHORITY DOES NOT REGULATE TAXATION ADVICE.