Independent Financial Advisers and Pension Consultants

INHERITANCE TAX - BE PREPARED

When Gordon Brown first became Chancellor in May 1997, there was much speculation that one of the changes in his first Budget would be an overhaul of inheritance tax (IHT). Then nothing happened and it was assumed the next Budget would be the moment for reform. In the event, the Chancellor made only one significant technical change to IHT during the last parliament. This was aimed at countering a complex scheme that had beaten off an Inland Revenue legal challenge. There is a school of thought that says Gordon Brown has decided to do nothing on the IHT front, but has instead chosen to focus on stamp duty) which now produces more than three times as much income for the Exchequer. On the other hand, if the Chancellor does want to act, then the first Budget after the election - and the Budget furthest from the next election -could be the time to strike. There are already signs that the Capital Taxes Office (CTO), the part of the Inland Revenue that deals with IHT, is adopting a tougher stance towards some of the more aggressive tax avoidance schemes. THE TAXMAN'S TAKE Your Estate Possible Inheritance Tax Bill Inland Revenue Share Of Your Estate £250,000 £3,200 1% £300,000 £23,200 8% £350,000 £43,200 12% £400,000 £63,200 16% £500,000 £103,200 21% £750,000 £203,200 27% £1,000,000 £303,200 30% In most instances, planning to mitigate the effects of inheritance tax need not involve anything provocative. One benefit of the relative stability over the last four years is that there is enough experience to show which plans do not seem to concern the CTO. These include several schemes that allow you to remove capital from your estate but still enjoy regular payments from the gift. Some variants of these schemes have existed almost since the birth of inheritance tax in 1986 and it is unlikely that any new IHT legislation would attack existing schemes. What is more probable is that new schemes operating on the same basis will become ineffective, as happened when IHT replaced capital transfer tax. Even if you think IHT will not affect you and your family, take a quick look at the table on the left. Remember, your estate includes your home and all your investments, including otherwise 'tax-free' investments such as ISAs and TESSAs. If you have three children who will benefit equally from an estate of £750,000, the largest single beneficiary could be the Inland Revenue.

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