Last Updated on 19.7.16 by Michael Smoult
Last week the world mourned the death of the much loved comedian and entertainer Ronnie Corbett who sadly lost his secret battle with motor neurone disease aged 85. Prior to his death Mr Corbett may have sold his seven bedroom south London home to prevent his children from facing a six figure inheritance tax bill. His wife has blasted the so-called death duty, arguing that inheritance tax steals the savings of hardworking people. In some cases, the death duty has even been referred to ‘The Sheriff of Sheffield’.
Inheritance tax is charged on money or possessions passed on when you die. Everyone has a tax-free inheritance tax allowance of £325,000. This is known as the ‘tax-free’ part of an estate, where 0% is due on the assets owned. Everything over the £325,000 inheritance tax threshold is charged to inheritance tax at 40%.
Reducing the Tax Bill
Provided the first person to die leaves their entire estate to their spouse, there may be no inheritance tax to pay. Since October 2007, you may be able to transfer the whole of your inheritance tax threshold of £325,000 to your spouse when you die. This means the surviving spouse takes your £325,000 inheritance tax threshold and their own inheritance tax threshold. This increases their inheritance tax threshold to £650,000. This means the surviving partner’s estate can be worth up to £650,000 before any inheritance tax is due. This can have the effect of doubling the amount the surviving spouse can leave behind tax-free.
Giving gifts is another way to reduce your final estate value. Each year you can give away £3,000, with these gifts falling outside your estate immediately. You can also gift larger sums of money but these will stay within your estate valuation for seven years. If you die within 7 years of making the gift, then the first £3,000.00 is ignored and the value of the balance is added back to your estate for inheritance tax purposes. Assuming you live for seven years, then these gifts fall outside your estate and avoid IHT.
Prior to Mr Corbett’s death, it is thought that he and his wife may have gifted their two daughters with cash from the sale of their property so as to avoid having to pay the 40% tax.
If you plan ahead there are ways in which you can reduce your inheritance tax bill. Simple actions can save you £100,000s and can in turn avoid depriving your family of capital. Even drafting a simple will can create tax efficiency on your death.
As a firm we have a great deal of experience in dealing with these matters and we fully appreciate the importance of planning ahead. If you would like to discuss any aspect of inheritance tax planning or will preparation then please do not hesitate to contact one of our experienced Solicitors who will be more than happy to help you and guide you through the process. Call us on 0161 930 5151 or send an email to firstname.lastname@example.org.