Posted on 16th January 2007

New Year Resolution - I Must Save on My Tax Bill

We all believe we pay far too much tax, but not enough of us are actually doing anything about it, according to Anne Elliott of Darlington law firm Latimer Hinks. The housing market boom of recent years has seen an increasing number of families with assets that take them over the Inheritance Tax (IHT) threshold leaving them vulnerable to large tax bills. In the first seven months of this financial year IHT revenue was a record 2.1billion, up 9% on the same period last year. Anne has put together her top tax tips for 2007 to help relieve the IHT burden and stop the Revenue becoming an extra beneficiary of your estate. Use the Annual Exemption of 3,000 per year, with a carry forward of 3,000 from the previous tax year if unused. This gift is immediately exempt in the context of calculating IHT liability. Use the Small Gifts Allowance to give 250 to any one or more persons each tax year, provided the gifts are not made to the same people receiving the annual exemption. For example, use the annual exemption to make gifts to three children. If they have partners and say 10 grand-children between them, using the annual exemption and small gifts exemption you can give tax-free gifts of 6,250 each tax year. Marriage Gifts Parents can give 5,000 each, grandparents 2,500 each and anyone else 1,000 with no adverse IHT implications. Make gifts early On death a portion of the estate, currently 285,000, is charged to IHT at 0% unless substantial gifts, over and above the exemptions, have been made within seven years of dying. If you live for seven years after making gifts, the gifts could effectively be exempt and once again there will be a full 0% tax allowance. Double Up Make sure you and your spouse or civil partner both take advantage of the allowances and exemptions by making gifts and having assets to utilise the 0% tax band. Trusts If you dont want to lose control of the management of your capital or your children are too young to receive direct gifts, consider setting up a trust. Trusts can still be very tax effective. Agricultural and business assets these attract fantastic exemptions and relief. Surplus Income Give it away and do so on a regular basis and you could fall within another exemption Lifetime Gifts out of Surplus Income. But keep records and establish a regular pattern of gifts to satisfy the Revenue. Property rich but disposable capital poor? Consider taking out a mortgage to release capital to fund gifts. Consider IHT planning through certain investments some provide excellent IHT saving opportunities. A financial adviser can help. Anne said: There are ways to minimise the tax burden, particularly with IHT, but it takes considerable planning and forward thinking. Reviewing wills, investments and pension plans regularly and taking advantage of all the exemptions and allowances available is vital. Look on the New Year as a time to talk to a specialist and make sure your family does not have to share your estate with the Revenue.