Inheritance Tax Mitigation*

Inheritance tax (IHT) can be a major problem. Unless you carefully plan all your assets, you or your beneficiaries could eventually become liable to the tax of 40% on the value of estates above the threshold of £325,000 in the current tax year (£350,000 in 2010/2011).

The threshold has not been increased over the years in line with house price inflation, so the estates of home owners continue to suffer increased IHT. The annual gift exemption of £3,000 has not been increased for many years, so the ability to give assets away continues to reduce in real terms. After all the taxation in your lifetime, on both income and capital gains, the HMRC demands the final say with IHT.

But does it have to? The 'death tax' has often been described as the 'only voluntary tax', because it is avoidable. If you give enough away during your lifetime, and you survive long enough to avoid any tax claw-back, then you could still have the last laugh - leaving no more than an amount equal to the nil rate band where no tax applies. How in practice can you do this and still leave yourself and your spouse enough to live on for the rest of your lives? And what are you to do about your house, possibly your largest single asset?

IHT has many exemptions and reliefs and a useful starting point is to consider them - though taking advantage of them in practice can be quite complex. A bespoke solution to IHT is necessary, as it will depend on the circumstances of each case. For example, what do your assets consist of and to what extent do you need them to generate income? Crucially, particularly for married couples, what flexibility is needed in terms of future access to capital or income, perhaps after the demise of the first to die?

A range of IHT solutions are available which, individually or in combination, can meet most people's objectives and circumstances, and achieve a great deal. One example is the protected inheritance tax service.

Protected Inheritance Tax Service

The protected inheritance tax service (ITS) offers you a simple and effective solution to the problem of IHT. Since its establishment in 2000, the service has built a reputation for creating innovative and successful investment products that meet the needs of individual investors. This means that we offer a range of products for different types of investors, from those looking to reduce their income tax or defer capital gains to those simply seeking to protect their capital.

ITS was launched as a service almost two years ago, and the track record details show that performance has been very good. However in spite of this performance, a number of our clients have asked us to create a lower risk version of this product. That's why we've launched the protected ITS.

The protected ITS offers two main advantages over other products in the market. First, in addition to the opportunity for long-term capital growth, you will benefit from an in-built life assurance policy which will cover any loss should your initial investment have fallen in value when you die.

Secondly, you retain access to your money at all times. This means that if your circumstances change and you need to withdraw money, you can. Additionally, instead of waiting for seven years, as you would with many other estate planning products, any investments made through the protected ITS are exempt from IHT after just two years.

However, individual advice is essential. We can help you to minimise your IHT liability while maximising what goes to your chosen beneficiaries.

For many years we've helped people pass their wealth on to their loved ones - with as little as possible going to the taxman. Making this happen calls for considerable skill and foresight - and a detailed knowledge of the tax regime. You can rely on Warde Graham's expertise in helping you to make the right choices.

Please be aware that not all Inheritance Tax Planning is regulated by the Financial Services Authority