Inheritance Tax Planning

Inheritance Tax (IHT)

In seeking to mitigate an IHT liability, planning can be considered only on an individual basis
to suit the requirements of the particular person. The size of the estate, the nature and location of the assets, domicile, available income, family circumstances and the willingness of the individual to make lifetime gifs are all the factors that must be taken into account. IHT is chargeable on worldwide assets if the individual concerned is domiciled, or deemed to be domiciled, in the UK and, if not, it applies only to the Individual's property in the UK.

Definition and those to whom inheritance tax applies

Inheritance tax is charged on certain transfers of value of gifts made during an individual's lifetime and/or death. IHT was introduced by the Finance Act 1986 and replaced transfer tax (CTT)

For UK - domiciled persons, IHT applies to all of their property whether situated in the UK or not.
For non-UK domiciles, IHT applies only to any property situated in the UK.

Exempt Transfers

• The list below identifies the main exemption to inheritance tax.
• No IHT is payable until an individual's cumulative total of chargeable gifts exceeds £300,000 (2007/2008). This threshold is available to each individual and, therefore, a husband and wife or couples registered under the Civil Partnership Act 2005, may transfer a maximum of 2 x £300,000 without any charge to IHT.
• The IHT threshold is also referred to as the nil rate band. It is important to note that the nil rate band is not simply a threshold below which no IHT is payable: the nil rate band works in the same way as personal income tax allowances in that, if a transfer exceeds the nil rate band, only the amount in excess of £300,000 (2007/08) will be chargeable to IHT.
• Gifts between UK-domiciled spouses are exempt.
• Lifetime gifts by an individual that do not exceed £3,000 in total in a tax year are exempt.