UK inheritance tax (IHT) is a tax charged on your estate when you die. It can also apply to certain gifts you might have made during your lifetime. Exactly who will be liable to IHT is quite complicated to describe, but in very general terms it will apply to those living in the UK at the time of death as well as some who have previously lived in the UK.
Your estate is basically everything you own in your name or your share of everything you own jointly It includes your main property, any additional property, cars, boats, life assurance policies, any investments, any personal effects such as jewellery, any assets held in trust which you can benefit from, and any gifts made where you keep back some benefit (gifts with reservation).
IHT is currently charged at a rate of 40% on the value of your estate which is above the nil-rate band threshold (currently £325,000 for 2010/11).
Planning to mitigate IHT
A financial adviser can help you explore a number of potential ways of mitigating any IHT liability. One way is to make use of any appropriate IHT exemptions that are appropriate. There are a number of these available: annual exemption, normal expenditure, small gifts, gifts to charities, to name but a few.
There are also a number of IHT mitigation schemes available from Skandia which have stood the test of time. Below is a brief summary of two such examples which use trusts:
The loan trust
The loan trust is an investment offering whereby you loan a lump sum to your appointed Trustees. This allows you (the settlor) access to the value of the outstanding loan whilst any growth on that sum is immediately outside your estate.
The discounted gift trust (DGT)
This is a scheme which allows the you as the settlor to make a lump sum gift to your chosen beneficiaries, whilst retaining a right to receive regular withdrawals during your lifetime.
One of the key differences between the DGT and the loan trust is that, with the DGT, you are unable to demand the full capital at any time but instead have an entitlement to regular withdrawals which are fixed at outset.
Inheritance tax is a curious tax as its impact for most will only become clear after their death. However, with careful planning and an adviser who is offering the full spectrum of financial planning, there are ways to lessen its impact.
We offer a full range of trust solutions to help you and your adviser with your IHT planning. In addition to this, we also offer a professional trustee service through Royal Skandia Trust Company.
N.B. All literature referred to in the brochures in this section can be found on this site rather than the Royal Skandia or Skandia Ireland sites mentioned.