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Inheritance Tax

Who is liable?

Many people are not aware that they may leave their dependents liable to inheritance tax in the event of their death.

The tax is levied at a rate of 40% on your net estate after taking away the tax free threshold (currently £242,000 in 2001/2002). It is easy to forget to add in the value of your house, life assurance policies etc. when assessing the value of your estate. In these days of spiralling house prices many people are falling into the inheritance tax band. This can leave beneficiaries with large tax bills to pay.

For example an estate valued at only £300,000 including the house etc. could be liable to taxation of over £23,000. Fortunately there are some simple ways to limit the liability. First of all, a married spouse is not liable for taxation no matter how large the estate. This does not mean that the matter should be ignored, however. For example a married couple, who both die within a short time period, perhaps as a result of an accident, would leave their children liable for taxation unless they make some provision.

Property given away during your lifetime is not taxable provided you survive more than 7 years after the gift. The liability can be protected during this period by a Gift Inter Vivos policy (see link on home page)

Life Assurance policy benefits can be placed into Trust which means that they no longer form part of your estate. The proceeds are therefore not liable to taxation provided that the trust meets certain guidelines. (see link on home page) It is recommended that you discuss this area carefully with a qualified Tax adviser if you feel that this may be an important issue in your own circumstances