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Property windfall highlights need for IHT planning

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1st Nov 2013
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An increase in home ownership rates and property prices has created a windfall for millions of Britons – and underscored the need for people to plan for inheritance.

Figures from the Office for National Statistics (ONS) for 2008-2010 found that 10% of adults inherited more than £125,000, with properties pushing them into a 40% tax rate.

According to the ONS, 1.6m adults have received more than £1,000 in the two years before being surveyed. The combined total of all inheritances received stands at £75bn.

The amount inherited has increased mostly because of home ownership rates burgeoning from 23% in 1918 to a peak of 69% in 2001, the ONS said.

William Hunter, founder of national wealth adviser Hunter Wealth Management, told AccountingWEB, that a huge amount of wealth was starting to “cascade” down the generations. People had to plan their finances effectively or they would pay more inheritance tax than they legally need too, Hunter said.

People start to pay inheritance tax on assets, such as property or money, worth more than £325,000.

Hunter said that there had been a lot of “aggressive” schemes to avoid inheritance tax in the past 10 years, but they have recently become less common.

People can minimise an inheritance tax bill by planning their finances early and, for example, by moving money into a family trust.

Gifting money can also be tax efficient. Individuals can give away gifts worth up to £3,000 in total in each tax year and these gifts will be exempt from IHT when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don't use it in that year, the carried-over exemption expires.

Gifts to individuals will be exempt from IHT as long as you live for seven years after making the gift. These sorts of gifts are known as 'Potentially Exempt Transfers' (PETs).

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Jennifer Adams
By Jennifer Adams
04th Nov 2013 12:26

A little known tax planning scheme...

As with anything to do with tax you have to be careful with generalisations - yes its £325K but that is per person such that with a married couple one takes over the first to die's allowance if unused so it is really £625K before IHT kicks in (sorry..typo..meant £650!)

Also with gifts there is one little known, little used but very useful legal tax planning available under s21 IHTA 1984 - 'Normal gifts out of income'

There needs to be a pattern of giving but that does not have to be of any large amount and a 'pattern' is usually at 3 gifts. HMRC do like it to be a fixed amount or see a formula (e.g 10% of surplus income). Those gifts are in addition to PET's.

But this 'bubble' in house prices is a concern - unfair if someone dies now rather than next year.

I am of course presuming that the 'bubble will burst next year reducing the valuation of many properties.

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By Justin Bryant
04th Nov 2013 11:55

It's £650k, not £625k

Also, the 'Normal gifts out of income ' IHT planning is not really helpful re the family home and other property and there is s191 IHTA 1984 relief re property bubbles.

There is lots of IHT planning available for the family home and other property if anyone wants to get in touch. www.ated.co.uk

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Jennifer Adams
By Jennifer Adams
04th Nov 2013 12:33

Yes....I know...
I was not responding to the part of the text re properties rather to the final para re gifts.

For articles on PPR tax savings see here under accountingweb tab specially set up:

https://www.accountingweb.co.uk/category/tags/property-tax
and in particular my article on PPR here:
PPR What you need to know
https://www.accountingweb.co.uk/article/principal-private-residence-reli...

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