 |
 |
eZine October 06
|
Click here to visit the Viceroy Invest website >
|
|
Three words that could save you £114,000
No... not abracadabra hocus pocus! But they are so easy to put into effect they might just as well be magic words. They apply to Inheritance Tax. You've spent your life working hard to earn your money, and paid a ton of tax on it, so why on earth should the government have it when you die? This tax used to be only for the rich, but nowadays it seems they're the only ones NOT paying it! Here's the problem... If you leave everything to your spouse on your death, it passes free of all Inheritance Tax (IHT). So far so good, but when your spouse dies, he or she is leaving not only their own wealth but also everything inherited from you. This is Christmas come early for the Exchequer! Each person can leave £285,000 free of IHT, (known as the IHT nil rate band) but then every penny above that is taxed at 40%, not just for higher rate tax payers but for everybody. In case you think this doesn't apply to you, here is a simple example: A husband and wife live in a nice 3 bedroom semi in the Home Counties currently valued at £300,000. They have re-mortgaged it to provide deposits on investment properties and after a few years their jointly-owned portfolio is valued at £500,000. With cars, furniture, jewellery and savings valued at £70,000, their gross assets total £870,000. They have mortgages of £300,000 outstanding, so their net worth (what they own minus what they owe) is £570,000. The husband dies first (it's not easy being a male) leaving his half to his wife: this is not subject to IHT because she is his spouse. But when she dies and leaves it all to their kids, her estate is worth £570,000 assuming its value has neither increased nor decreased since her husband's demise. Her nil rate band of £285,000 is deducted, leaving £285,000 on which 40% tax must be paid. A total bill of £114,000! But every penny of that tax could have been easily and legally avoided with three words - "Tenants in Common". And here are another three words: "Make a Will" When you buy property jointly, the default status is as "Joint Tenants", unless you specify otherwise. Make sure you do specify otherwise; it could save your heirs up to £114,000 if you and your spouse hold property as Tenants in Common and make an appropriate will. As with all things legal, you must consult your solicitor. It is quite straightforward and inexpensive (less than £50) to change ownership of existing properties from Joint Tenants to Tenants in Common, but there are some details about the way your will is written that will be personal to you. The important thing is that each of you leaves your half (especially of investment properties) direct to the kids, so you get two lots of £285,000 tax free, thus saving your heirs up to £114,000. To be able to do this, you must own it as Tenants in Common. Other Stories...
eZine |