Your Will - Trustees
Your Will - Discretionary trusts
Your Will - Giving to charities
Your Will - Important drafting points
Your Will - Inheritance and children
Your Will - Inheritance tax strategies
Your Will - Living Wills
Your Will - Marriage and divorce
Your Will - Medical use of your body
Your Will - Mutual wills and mirror wills
Your Will - Post mortem tax planning
Your Will - Property you can leave by will
Your Will - Revoking wills
Your Will - Choosing executors
Your Will - Why make a will
Your Will - Keeping it within the family
Inheritance tax – strategies to maximise the benefits
Introduction
This article is one of a set about wills. While some of the information pages explain various pieces of legislation which are relevant to making a will, others explain a particular aspect of will writing that you might like to consider.
This article explains some strategies which can be used to maximise your life long’s hard work by retaining your assets via different methods. Below are headings to give you some ideas:
Skipping a generation
If your children are wealthy, consider skipping a generation. Instead of leaving gifts your children, leaving the gifts to or for the benefit of your grandchildren to avoid increased inheritance tax being payable on your children's deaths. In this way the gift is only taxed once instead of twice before the grandchildren inherit it.
To skip a generation can also have income tax advantages if the grandchildren inherit before they become of age. The income tax advantage arises from the fact that if capital transferred to a child by a parent earns income in excess of £100 in any tax year, the income is taxed as if it were the parent's income, but income earned by capital transferred by a grandparent is treated as the grandchild's own income irrespective of the amount of the income, and if it does not bring the grandchild's income above the grandchild's personal income tax allowance, any income tax deducted from the income can be recovered on behalf of the child.
Gifts to spouse
You often hear the advice to “Give assets to your spouse, so that no IHT is payable”. On the face of it, that may seem to be a good idea, but that is not necessarily so. If your assets are likely to grow in value, it may be better to have the benefit of that growth accumulate in the hands of beneficiaries, even if some tax becomes due on your death. Of course, you may want to give assets to your spouse for far better reasons than to save tax!
Use exemptions and allowances
Carefully research government strategies to help you. Use government exemptions and allowances to your best advantage. There is no point in trying to re-arrange your life around some smart idea, when the Government actually allows you to reduce your IHT bill in particular ways.
Beware the capital gains tax trap!
A transfer of assets on death is not a “chargeable event” for CGT purposes. That means no tax is paid on your assets when you die. Instead, your own “base value” (the value when you acquired them) is attributed to your heirs. The result is that when they sell, there may be a big bill for CGT! For more information on capital gains tax, click here.
Use a determined valuer
One good way to minimise the IHT bill on your death is to choose executors who will not roll over to have their tummy tickled when the District Valuer places a value on any real property sold or transferred out of your estate. District valuers profess to be neutral, but when it is your money they are taking, it pays to fight for the value you want.
Consider the 2 year discretionary trust
Where the testator wishes to give their beneficiaries maximum flexibility in the way in which their estate is distributed, it is not uncommon to see the whole estate, or at least an amount equivalent to the nil-rate band, left on discretionary trusts. Where the trustees subsequently make a distribution of the trust property, the law operates as if the will had provided that the on the testator's death, the property had passed according to the distribution.
A power of appointment under a will is vested in the executors/trustees as from the death, and is exercisable over all residue, whether ascertained or not, unless, as a matter of construction, the will clearly demonstrates a contrary intention.
Consider nil rate band discretionary trust
If you give money or other assets up to, but not over the nil rate band current at the date of your death (and of course now unknown to any of us), no IHT will be payable on that gift. Of course, the rest of your will has to drawn carefully to make sure it is this chunk of your estate that carries the full benefit of the nil rate band, and not some other part.
The benefit of this is that your discretionary trustees can accumulate assets in the trust at far lower tax rates than the beneficiaries would themselves pay if the assets were in their hands. If for example, an NRB trust was created by your will, leaving only assets you specifically wanted to leave to your spouse, then no IHT would be payable on your estate at all.
Your discretionary trustees can be guided as to your wishes by an informal letter of instruction in which you set out what sums you would wish to be given to whom and when. However, it is always a mistake to try to plan your business from your grave in too much detail.
Deferred valuations generally
The District Value is a branch of Revenue and Customs. It is staffed by professional valuers with the same training as property valuers in the private sector. When you submit any form to Revenue and Customs which involves a statement of the value of real property, they will pass it to the DV’s office to agree (or disagree) the valuation you have made. You have no obligation to declare values or have valuations made when such a valuation does not affect the tax due.
However, the more distant is time is the relevant date applicable to a valuation, the more the figure is estimated. So, briefly, the use of a trust may generally defer valuations, and so provide more “flexibility” when the time to agree figures comes around.
Net Lawman offers 17 different will templates. They are listed and explained here.
A full list of help articles about wills is listed top of this page.
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