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Call for a renewed look at inheritance planning; PERSONAL FINANCE.

Byline: Graeme Brown graeme.brown@trinitymirror.com

Graeme Brown graeme.brown@ BENJAMIN Franklin, the scientist and one of the founding fathers of the US, famously said: 'In this world, nothing can be said to be certain, except death and taxes'.

And the link between them is becoming ever more apparent according to Philip Harrison, partner at Meridian Private Client, solicitors specialising in estate and long-term tax planning.

"It has been reported that UK families paid 30 per cent more inheritance tax in the year to April 2013 than they did in the tax year before the Coalition government came into office," said Mr Harrison.

"The IHT threshold or nil rate band, the value of an estate at which IHT becomes payable, generally at a rate of 40 per cent, is to be frozen at PS325,000 until at least 2019, when it will have been unchanged since 2009. Since then, inflation has dragged many more estates into the IHT net and will continue to do so as house prices rise further. The PS3 billion a year currently collected from IHT will rise dramatically".

Estate planning to minimise IHT bills starts with the structuring of a person's will.

Married couples and civil partners benefit from an IHT exemption which allows the assets to transfer tax-free on first death. Then, on second death, the survivor may have two NRBs to set against the value of his or her estate, increasing the assets passing free of IHT to PS650,000.

However, leaving everything to the survivor on the first death can 'waste' available reliefs, according to Mr Harrison.

"In particular, business assets such as shares in unlisted trading companies can attract 100 per cent relief from IHT, known as business property relief.

"As long as the stake in the trading business has been owned for two years, full relief from tax can be obtained on the passing of the owner or shareholder".

According to Mr Harrison, businesses should be monitored to ensure that potential eligibility for BPR is not threatened, for example, if the business were to invest in substantial non-trading investments, or have cash which is surplus to requirements.

"Restructuring may avoid a problem but early action and regular reviews are essential" said Mr Harrison.

On the death of the shareholder or owner, the business asset will pass free of IHT regardless of who inherits.

Therefore, Mr Harrison points out that leaving the asset to the surviving spouse or civil partner can 'waste' the relief if it is subsequently sold because, after sale, the proceeds no longer attract BPR on the passing of the second partner.

"The benefit of the relief can be maximised by leaving the business asset in trust on the first death so that the proceeds of sale are outside the survivor's estate but can still be used to benefit the survivor," said Mr Harrison.

He cites the fact that outright lifetime gifts to children or grandchildren are currently free of IHT provided the donor survives for seven years, though the Institute of Fiscal Studies have suggested that this is an anomaly which should be ended.

"For the moment though, gifts remain an option. However, large outright gifts can be unattractive in asset protection terms - for example they could be at risk in the event of divorce or simply financial mismanagement - and trusts are often preferable.

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Philip Harrison of Meridian
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Mar 13, 2014
Words:563
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