For any person or couple whose assets are worth more than £325,000 (for a single person) or £650,000 (for a married couple) Inheritance Tax (“IHT”) is a major threat to the inheritance they want to leave to their children. IHT is payable from your Estate at a flat rate of 40% on all assets over the limits shown above. Remember your Estate may include substantial lump sums from life assurance and pension policies. It is an uncomfortable thought that many people are financially better off dead than alive.
However, there are ways of avoiding large IHT bills for your children. For example:
Existing life policies and pension plans should be written into a flexible trust for your partner and children. If not 40% of any lump sum can be lost in tax.
Short or medium term policies can be set up in trust for your children, particularly for the costs of their upbringing and education. These can provide generous protection at little cost.
Grandparents can set up tax-free trust funds for their grandchildren.
IHT can be a particular disaster if a couple die leaving young or teenage children. The tax is just the same as for a couple who live into old age. Proper arrangements can greatly reduce the tax.
Life assurance and pension plans should be arranged only with independent financial advice. However, proper trust arrangements are essential as part of overall planning and we are happy to advise as required.
Stephen Gallico Solicitors is authorised and regulated by the Solicitors Regulation Authority (Registration number: 386696).
A copy of the Solicitors’ Code of Conduct 2007, which sets out the rules of professional conduct which apply to solicitors, is available on the Solicitors Regulation Authority website: http://www.sra.org.uk.
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