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This is all about tax. Inheritance tax
to be precise. Now, tax isn't fun, but
any tax capable of being avoided must
be more appealing than other taxes. Inheritance
tax is one of the few taxes that can legitimately
be avoided with a good deal of attention
to detail and some forward planning. Make
use of all the legal loopholes available
to you and you can save or make quite
a bit of money.
The first £250,000 of your estate at
the moment can be passed down free of
tax should you die. This is called the
'nil rate band'. After this amount your
beneficiaries will have to pay 40% tax
on anything they inherit. So, an example
would be that should your estate be worth
£450,000, £200,000 will be liable for
tax, and your beneficiaries will be stuck
with a tax bill for £80,000. There is
always speculation before budgets that
the chancellor will raise this nil rate
band, but it seems that when it happens,
it is in small increments.
Many people see £250,000 as a large amount.
And assume that they are unlikely to be
leaving £250,000 to their family. But
you should take a step back and add up
the value of every single thing you own.
This includes your car, your investments,
and most importantly your home. Many homeowners
in the South East of England who own anything
with 3 bedrooms are extremely likely to
overstep the inheritance tax with the
value of their properties alone. |
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However, what you may not know is that
there is an IHT loophole called the spouse
exemption under which all assets left
to a husband or wife domiciled in the
UK can be passed on without any tax liability.
These assets can be passed on at any time
in your life as well as in your death.
This only applies to married couples though,
unmarried couples, whether co-habiting
or not, do not enjoy this loophole.
So, what happens if your spouse dies
as well? Well, all you are doing by passing
on your possessions to your spouse is
deferring IHT, not avoiding it.
So, here is the advantage of taking out
a joint life policy with your spouse.
Should your estate be worth £450,000,
meaning an IHT liability of £80,000, you
get a life insurance policy that'll will
pay out £80,000 on the second death of
you and your spouse. The policy is written
in trust, so that on the first death,
the surviving spouse inherits the estate
without IHT liability, without the policy
paying out.
When the surviving spouse dies, the estate
is left to the beneficiaries, usually
the children, and the life policy should
cover the tax liability in full.
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