Quarterly News

A time to give?

The last year has generally seen a fall in average house prices. However, the average price of a detached house at the end of 2008 was still around £340,000. The stock market has also seen significant falls with the FTSE 100 index down by almost a quarter on its January 2008 level. This is all very depressing but there may be a silver lining for those serious about doing some inheritance tax (IHT) planning.

Not an immediate priority? Well, if you are a married couple and the value of your joint estate - taking into account property, shares, savings and any other assets - currently exceeds £624,000 you already have an IHT problem. Maybe its not as bad as it was a year ago but it is still a problem!

Here's the opportunity. If you make gifts of assets to other individuals in your lifetime, those gifts are not chargeable to IHT unless you die within seven years of making them. If that sadly happens then some IHT may be payable but the tax is calculated not by reference to the value of the asset on the date of your death but by its value on the date it was actually gifted. In addition, once three years have elapsed from the date of the gift any tax bill which does arise may be reduced by 20% for each subsequent year. Making a lifetime gift therefore freezes value and makes the tax less of a problem.

Lets say you gift some shares worth £100,000 now and in eight years time the market is back up again and those same shares are worth £150,000. The tax on £150,000 falling into your estate could be £60,000. The tax on the lifetime gift will be nil.

There is another problem that a falling market can help with. A gift of an asset will be a chargeable occasion for capital gains tax purposes and so a gain could arise with a tax liability of 18% which is not particularly attractive. However, some assets may currently be standing at a loss and so can be gifted with no immediate CGT liability. Further, the loss arising may be available against future gains, in limited circumstances. (Where a gain is still likely we can advise on the use of a trust as a means of deferring that liability.)

Give some thought as to whether you can afford to make gifts and if possible look to give assets which are likely to grow significantly in value because they will provide a greater tax saving than simply giving cash. Only make gifts if you can really afford to do so - any gift must have no strings attached otherwise significant IHT problems can arise.

In the last edition

Autumn 2011 headlines

• Low-paid get a boost
• The Residence Test
• When does 10% = 4%?
• What a Relief

We provide four Quarterly News Journals packed with useful breaking news, all intended to keep you up to date with the latest information. We display one years worth of news, just in case you have missed something.

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