Money Matters - Spring 2007

Property owners seek ways to reduce stealth tax

Photo of seaside villa. Ten million homeowners now own assets worth more than the inheritance tax threshold, according to recent research. Continuing rises in property prices have ensured that more than four out of ten estates will be liable to pay IHT. Although the government has brought in measures to prevent avoidance of IHT, there are still plenty of straightforward steps you can take to reduce the impact of this increasingly significant tax.

Lifetime gifts to individuals remain free of IHT provided the donor survives seven years. If you are in a relationship, consider the advantages of getting married or entering into a civil partnership. It will mean that property can pass to your partner tax free. And where tax cannot be avoided, you could enter into an insurance contract or savings scheme to provide the means to pay it.

Above all, if you own any property, make sure you have a will and that you review it regularly so that you can make use of all available IHT exemptions and reliefs, and also ensure that assets pass to your heirs in line with your wishes.

You might think that you could save IHT by moving your money outside the country or by buying a property overseas. In fact, the chances are that it will not help. If you are UK domiciled you are liable to IHT on all your assets regardless of where they are situated in the world. HM Revenue & Customs recently stepped up scrutiny of inheritance tax returns showing overseas property in the belief that some estates and trusts may not have fully declared it.

If you move abroad permanently, you may eventually be able to lose your UK domicile, leaving only your UK assets liable to IHT — but it is not easy to achieve. A recent Special Commissioners’ decision emphasised the importance of establishing an intention to live permanently in a specific overseas country and the need to break all significant links with the UK.

We would be happy to give you specific advice on IHT mitigation so that your heirs can enjoy the wealth you have worked to create.