Richard Rawlinson casts a jaded, end-of-life eye over this week’s Budget.
Boy George Osborne’s Budget did nothing to address the 40% IHT that clobbers so many after a death in the family.
There’s nowt to be done about the ridiculous significance of seven years but here are seven tips to avoid IHT:
1 Make your will sooner rather than later as there are exemptions available if they’re set in motion seven years before death. If you die intestate, you have no control over how your assets are distributed.
2 Gifts made seven years before death are free of IHT. However, if you reserve any benefit from a gift – such as continuing to live in a house you have given away – then HMRC may apply ‘gift with reservation’ rules to impose tax as if the transfer had never happened.
3 If you cannot afford to give large lump sums away, it makes sense to use smaller opportunities on a regular basis – such as the £3,000 per person annual allowance for gifts. There is also an allowance for each parent to give each child up to £5,000 to when they marry.
4 Family trusts can be set up to enable assets up to the IHT threshold to be sheltered from tax, so long as the donor survives seven years. Unlike outright gifts, these trusts let donors retain control of the assets, just in case your beneficiary has a penchant for fast cars, fast women and cocaine.
5 On a sober note, where injuries suffered during military service are a contributory factor in anybody’s death, then that person’s estate may become entirely IHT-free.
6 Some tax shelters cease to be effective after death. ISAs are popular ways of avoiding tax on income but they confer no protection against IHT.
7 If retired overseas, one definition of domicile is the country in which you intend to be buried. If you are domiciled overseas, then only assets based in Britain will be subject to IHT, whereas IHT would cover your worldwide assets if you remained domiciled in Britain.