As a married couple, does value of your assets exceed £300,000? Due to recent changes in legislation concerning Inheritance Tax (IHT), most previous IHT schemes have become ineffective should the surviving spouse wish to remain in the property. An effective way to reduce the potential tax bill placed upon your Estate can be done simply by incorporating a Discretionary Loan Trust document within your Wills. Such a Trust, if utilised to its maximum, will save £120,000 (Budget 2007). In most cases, this tax bill must be paid prior to your children or beneficiaries inheriting any part of your Estate. For further discussion on Discretionary Loan Trusts please contact your Financial Advisor or alternatively we would be happy to recommend one to you. contact us
Most couples have their Wills written as such that on first death everything is left to their spouse, and after the surviving spouse passes away the Estate is distributed between their children. However, this does not make use of the tax-free allowance that each person is entitled to. The result of this is, that on second death, you have left an unintentional "gift" of several thousand pounds to the Inland Revenue, as everything above £300,000 will be taxed at 40% (as of Budget 2007).
On first death, up to £300,000 can be placed into a Discretionary Loan Trust. Any other monies, which are not placed in Trust, will pass tax-free to the surviving spouse. The primary beneficiary of the Trust is the surviving spouse and he/she will therefore have full access to the money held in it. Monies withdrawn from the Trust, by the surviving spouse, are considered as tax-free 'borrowings or loans', which are repaid to the Trust on his/her demise, thus reducing the value of their taxable Estate also.
We would need to incorporate the Discretionary Loan Trust document into your Wills. In addition, we can convert the ownership of your property to Tenants in Common, so that you each own 50%. This enables equity from the property to be released and subsequently placed into the Trust if necessary, thus maximising the effectiveness of each of your IHT allowances.
We would strongly recommend that you give serious consideration to the use of a Discretionary Loan Trust. Should you wish to discuss this further, please do not hesitate to contact us.