4       TAX AND YOUR ESTATE

Under current tax law* if your property and possessions exceed £275,000* in value they will be liable to inheritance tax when you die.  This may seem a great deal of money, but remember that the value of your home is included.

Inheritance Tax is currently fixed at a flat rate of 40%*.  So if you leave an estate worth £295,000 the taxable amount will be £10,000(295-285).  The tax will be 40% of that, so £4,000.  There are a number of exemptions available, and this means that with careful financial planning you can considerably reduce the tax payable on your death and possibly eliminate it altogether.

You have worked hard to secure your assets and you will not wish a substantial part of that value to disappear in taxes.  Inheritance Tax, when it applies, is heavy and every legal step should be taken to avoid it.

It is relevant when tax planning to address the estates of both spouses in order to take account of the various tax advantages of the relationship.  A specific point would be the nature of any joint holdings and in particular whether they are held or should be held as ‘beneficial joint tenants' or as ‘tenants in common'.

There is also the possibility of taking out term assurance to cover a potential liability in the short term, for instance to cover a substantial lifetime gift.  In order to consider your particular circumstances it will be necessary to have details of any such gifts made in the last 7-14 years over and above your annual gift allowance.

In appropriate cases use should be made of the annual gift allowance.  This may or may not be in conjunction with a trust.  However it must be remembered that to be effective for inheritance tax purposes gifts must be absolute, that is, no interest whatsoever can be retained.

Although under current legislation it is possible to effect a Deed of Variation of a Will after death, this is not usually a recommended alternative.  Additionally it is not at all certain how long such a facility will be possible.

Amongst other taxes your professional adviser will need to consider are capital gains tax and income tax.

*as provided in 2006 Budget and subject to change in future budgets.