INHERITANCE TAX PART 1
What is Inheritance Tax?
Inheritance Tax (IHT) is, essentially, a tax levied on any transfer of assets, directly or
indirectly, to other people. It is most commonly paid in respect of an individual's
estate on death, but it can also apply in respect of certain transfers of assets during
life.
It is a mistaken assumption that you need to be particularly wealthy to incur a
substantial Inheritance Tax liability. When you die, the value of your taxable
estate is calculated. This is the total value of all your possessions and assets,
less any available exemptions and relief. If the taxable estate exceeds the nil rate
tax band of £275,000 (for 2005/6), anything over that sum is taxed at 40%.
There is only one tax band; with Inheritance Tax everyone is a higher rate taxpayer.
Avoiding Inheritance Tax
One way of avoiding Inheritance Tax is to make a lifetime gift. This can be to
individuals or to a trust arrangement. It must be an outright gift to be effective;
it cannot be made 'with strings attached'. For example, the gift of a house subject
to continuing occupation at less than a commercial rent is likely to be ineffective.
When a gift is made, it will normally be exempt, relieved, or potentially exempt.
Exempt transfers
Exempt transfers are those that can be made without any Inheritance Tax implications.
The more important include the Spouse exemption (transfers between spouses), annual
exemption (£3,000 per tax year), small gifts exemption (up to £250), normal expenditure
out of income and the marriage gifts exemption.
Reliefs not subject to IHT
In addition, in respect of certain assets, 100% Inheritance Tax relief is currently
available. The more important include Business Property Relief and Agricultural
Property Relief.
Potentially Exempt Transfers
This is a term that describes a certain type of gift which, subject to certain conditions,
will not incur a liability to IHT. If a PET is made at least seven years before
death, it then is held to be an exempt transfer. If death occurs within 7 years,
then the gift becomes included in the taxable estate.
Reservation of Benefit
Any attempt by the person making the gift to retain a benefit is likely to invalidate the
original gift. Examples include a gift of shares, while retaining the right to
dividend income, or the gift of a house subject to a right of rent free occupation.
Where the person making the gift reserves a benefit for himself, then the value of
the property in question at the date of death will be included in the estate for
Inheritance Tax purposes.
How to mitigate Inheritance Tax
Even taking advantage of the lifetime gifts provisions may not be enough and a substantial
potential tax liability could remain. But there are still steps that can be taken to
ensure the tax bill at the end of the day will be minimised.
For more information about Inheritance Tax planning, please contact Myers Financial
Management on 01263 821147 or by e-mail on enquiries@myers-group.co.uk
This article is based on Myers Financial Management's understanding of current law and
Inland Revenue practice, which may be subject to future variation. It is only
relevant in respect of Inheritance Tax as it affects an individual (and their spouse) who
have a UK domicile. It is recommended that any individual who has or may have an
Inheritance Tax liability should first consult their financial adviser before taking any
course of action
Myers Financial Management is authorised and regulated by the Financial Services Authority
SHERINGHAM CARNIVAL ASSOCIATION.
Social evening for existing and New Volunteers.
Come along and meet the people who make Carnival Week happen.
Inquiries to Tony Nelson (823581)
7.30 Monday 27th Feb at Sheringham Social Club (close to the Station Road car park).
Light Buffet included
WEA DAY SCHOOL IN SHERINGHAM - ASTRONOMY FOR BEGINNERS
There will be a Day School on Saturday 4th March on Astronomy for
Beginners. The Tutor is Glenn Barrett, B.Sc (Astrophysics). The aim of the day is
for you to be able to find a few of the constellations in the Winter/Spring night sky and
to learn a little about some of the many interesting objects which make up our solar
system and the universe beyond. No mathematical or scientific knowledge is required.
The day will run from 10.00 a.m. to 4.00 p.m. There will be breaks for coffee, lunch
and tea. Please make your own lunch arrangements. The atmosphere will be
informal, and all are welcome.
The venue is St Andrew's Methodist Church Hall, Cromer Road, Sheringham.
Cost £12.00 (free if on benefit). Pre-enrolment essential.
For enrolment and further information phone Jane Idiens on 01263 837779.
 
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