Inheritance tax
However inheritance tax can be difficult to understand and it's important to make the right decision, so you should speak to a solicitor and get professional financial advice on this area.
What is inheritance tax?
Inheritance tax is a type of tax you have to pay, when you die, on the assets you leave for your loved ones, like your home, stocks and shares, possessions - normally known as 'your estate'.
Since Gordon Brown's recent budget, the threshold at which you must pay 40 per cent tax on your estate has been increased from £255,000 (the government's 2003/2004 threshold) to £275,000 in 2005, £275,000 in 2006 and £275,000 in 2007, unless your estate is left to your spouse. This money goes straight to the taxman, rather than your loved ones, so it makes sense to think about how you could minimise the amount you have to pay.
But will it affect me?
You may think that £275,000 still sounds like an awful lot of money, so you probably think you won't be affected by inheritance tax, but as property prices keep rising, inheritance tax is beginning to affect more and more of us, although since the 2005 budget it is thought that 94 per cent of estates will not have to pay this tax.
According to the February 2003 Land Registry figures, the average house price in the South East was £188,000, but if you move into Greater London, this jumps to £302,753. So if you have an average mortgage-free house in Greater London, then you will already be expected to pay inheritance tax!
Can I minimise the inheritance tax that may have to be paid?
What you can do depends very much on your own situation. Your solicitor will advise you on what may and may not be appropriate for you, so it's very important you take advice before doing anything.
To find out whether you think inheritance tax may affect you it is a good idea to add up how much you are worth. Remember to think about things like:
- Your property - how much is it worth and what is the mortgage you have on it?
- Any stocks, shares, ISAs and other types of investments you have
- Personal possessions of value
- Antiques, jewellery and paintings
- Money in savings accounts
- Life insurance policies
- Cars
- Any other assets you have
Remember to take off any borrowings you have, like your mortgage, credit card bills and personal loans, so you can find out what you are worth minus all the things you owe!
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