Submitted by: Ian Robinson
If you were to say the words Inheritance Tax to somebody, it is quite likely that they would be able to explain what the term meant and perhaps even roughly explain the basic ideas behind it. But how much do you really know about the current laws that dictate Inheritance Tax? It is more than likely that the answer is: not as much as you should. Whilst inheritance tax does not by any means affect everybody in the United Kingdom, the effect of the tax is often keenly felt by those for whom it is relevant.
The topic of inheritance tax (IHT) was brought to the attention of the public recently through a series of articles in the media regarding two sisters and their battle to avoid IHT. Joyce and Sybil Burden, 90 and 82 years of age respectively, lost an appeal in the European Court of Human Rights in which they were asking the court to rule that they, as cohabiting siblings, were exempt from IHT. They were doing this to attempt to make sure that when one of them dies the remaining sister does not need to sell the home in Wiltshire that they have shared for decades simply to pay the inheritance tax bill.
The Burden sisters have, since 1976, written to the Chancellor of the Exchequer every year asking to be treated in the same manner as a married couple is in regards to IHT. It was not until 2004, however, when they began their legal battle. They did this because civil partnerships had become lawful and they believed they may be able to use discrimination legislation in an attempt to gain the same status.
The Civil Partnerships Act granted the same legal rights to gay and lesbian couples that married couples have, and this includes the legal status that they are privileged to in relation to inheritance tax, which it does not grant to family members. This means that if the Burden sisters had not been related they could have formed a civil partnership and no IHT would be payable when one of the sisters passes on. As they are related, however, they are unable to do so.
Unfortunately for the Burden sisters, the European Court of Human Rights voted that the Civil Partnership Act does not violate the prohibition of discrimination, which comes under Article 14, by not giving them exemption from IHT.
So, one might be inclined to ask at this point, just what exactly are the rules that influence inheritance tax? The answer is that there is a threshold, which changes every tax year, that is decided upon and determines whether or not the deceased s estate will be subject to inheritance tax or not, according to it s value. IHT is paid by the executors of the will.
IHT is charged at 40% on all assets that have greater value than a particular amount, which is decided by the government, left behind when someone dies. Assets left to a spouse are exempt from the tax. The current threshold above which the value of estates is taxed at 40% is 312,000. This is for the tax year 2008-2009. In 2009, the amount rises to 325,000, then up to 350,000 for the tax year after that.
Married couples and civil partners currently have a combined threshold of 600,000, after the amount was raised in 2007. As result of this inheritance tax will not be charged on the first 600,000 of their estate when the second partner dies, but only if none of the allowance was used when the first partner died. A regular example of this is if assets were left to other relatives.
If this is the case, you may be wondering what you can do to minimise IHT. Again, the answer is that there is a lot you can do. Indeed, IHT has been described by some as a voluntary tax on those who are not smart enough to simply plan to avoid it.
Assets that are given away more than seven years prior to someone dying are totally exempt. Many individuals give their assets away to avoid the tax entirely. There are intricate rules against what is termed the reservation of benefit but with good legal advice there are still many ways to legally avoid much, if not all, of the tax. It is also possible to put some assets in trust to avoid the tax. Many individuals put their life insurance policies into trust for their children. This avoids IHT in most cases. Life policies can be also taken out and put in trust and the proceeds used to pay the tax.
In addition to this, and perhaps most importantly, most of those who die do not pay IHT simply because they are well below the threshold. As mentioned before, it is only those with assets worth 312,000 or more in the tax year of 2008-2009 who have IHT to pay.
If you do find yourself subject to inheritance tax, however, you should not panic. IHT does not have to be paid immediately; it can be paid over a period as long as ten years.
This article is free to republish provided the authors resource box below remains intact.
About the Author: Ian Robinson is a
Lawyer in Hampshire
and a senior partner at Churchers Solicitors. Ian heads the commercial and family team of
solicitors in Hampshire
UK.
Source:
isnare.com
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