HOW TO AVOID INHERITANCE TAX

In an article in the Financial Times in January 2005, Isabel Berwick explained how some tax avoidance schemes were no longer valid as a result of the "pre-owned assets" (POA) legislation brought in by the Chancellor of the Exchequer recently.

This has caused a lot of confusion and concern and has caused many people to question whether any tax planning is likely to be worthwhile. However, will planning is not about reserving a benefit in one's own lifetime. Any action deemed a Reservation of benefit has always been frowned upon by the Revenue and subsequently taxed anyway.

She went on to write that the following was still good advice when setting out to minimise tax:

Nil-rate band discretionary will trust using an IOU.

Set up by a will using a nil rate band discretionary trust, the trust can be settled by a debt charged against the surviving spouse. This is done by a debt clause written into the will.

This means that actual assets do not have to pass on the first death and the surviving spouse can use the said assets. This does not wholly remove the threat of IHT but you can save £105,200 of tax using current rates.

To do this, you need to sever the tenancy on joint assets (e g the family home). This means the assets do not automatically pass to the surviving spouse on death. You can use your will to distribute them tax efficiently and to those you want to receive them.

Click here to learn more about Loan Trust Wills.

If you would like advice from a qualified willwriter please click here to visit www.IHTsaver.co.uk.