Inheritance tax – don't wait, plan now

Meet new blogger Ed Hill, who will be writing about tax and financial issues for Expressandstar.com. This week - inheritance tax and why you should plan for it now.

Ed is a partner at the Walsall office of Baldwins Accountants, working with a wide variety of businesses across the region.

He writes: UK taxpayers will waste more than £1bn this year due to poor inheritance tax (IHT) planning.

If you die without plans in place to protect your assets, the Government may take as much as 40p of every pound above the £325,000 threshold.

Protecting your wealth ensures your family is provided for after your death. IHT can seriously diminish the wealth you pass on, but decisions you make now, could make a big difference.

Write a Will - This is the essential first step. You will understand what your estate is worth and what personal IHT planning you require. Remember IHT is not payable on anything you leave your spouse or civil partner, even if it's above the threshold.

Be generous - You can gift up to £3,000 every year free of tax; it can be one gift or several smaller ones. Parents can also give up to £5,000 to each of their children as a wedding or civil partnership gift, while grandparents can give up to £2,500. Gifts to charities are free of tax, so you can help others beyond your family too.

Trust in Trusts - Placing assets into a trust fund during your lifetime can significantly decrease your IHT bill - and can be used to help guarantee that the trust assets pass to your children rather than your spouse's new partner should he or she re-marry.

Seven-year rule - Gifts to friends and family could be potentially exempt transfers (PET), but you cannot give something away and still benefit from it. You can't give away the family home and then continue to live in it, unless you pay a market value rent. And it's important to remember that all gifts made more than seven years before you die are free of IHT, whatever the value of that gift.