Inheritance Tax Planning

Make a Will, Save a Fortune and Get Your Own Back on the Tax Man! (Cont...)

An Example of how it all works!

Mr and Mrs Sleepy each have assets of £300,000. They make Wills leaving everything they have to the other, with a final gift when they have both died to their children. When Mr Sleepy dies no tax is payable (no matter how large his estate) because of the spouse exemption. However when Mrs Sleepy dies the total of their assets (£600,000) will be fully taxable at 40% before they reach the children, subject only to a deduction representing the nil rate band available on that death (currently £275,000). The children will therefore have inherited the whole estate having had the benefit of only one nil rate band.

Mr and Mrs Wise, on the other hand go to Thomson & Bancks LLP Solicitors, who point out that if on the death of the first spouse £275,000 is left direct to the children there will still be no tax on that death (because the first £275,000 is exempt anyway). Since this sum will not ultimately form part of the survivors estate, the size of it will be less by the sum of £275,000 on which the tax saving is £102,000.

That is all very well say Mr and Mrs Wise but suppose the surviving spouse cannot do without the income from the deceased's £300,000 and might even need some of the capital in an emergency? No problem reply Thomson & Bancks LLP Solicitors! The £275,000 instead of going direct to the children can go into a simple discretionary trust under which the surviving spouse can take the income (and some capital if necessary). The result would be exactly the same! Even better the Will can be so worded that the trust need not contain anything except a debt owed by the surviving spouse to the deceased's trustees which can be left outstanding until the second spouse's death and thereby reduce his or her estate at that stage.

You may think it strange that the tax system could produce a result like this and many Solicitors would agree, but that's the way it is and the savings cannot be ignored!

How can we help?

As can be appreciated this is a highly complex field and requires specialist help from a Solicitor. If you believe your estate is likely to be taxable or have recently had a death in the family and feel Inheritance Tax advice may be required, we will be happy to discuss the alternatives that may be open to you.

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The articles on legal topics published in these pages are for interest only and are necessarily general in their terms. You should not act (or refrain from acting) on the basis of the information given without specific advice, as the principles and laws concerned may change, and their application will vary according to the particular circumstances.