Quick Guide to Tax and Estate Planning
Today's hectic lifestyles afford very little time for such mundane subjects as tax and estate planning, hence they tend to be something that we put off. In fact, it might only take a few straightforward measures to put your affairs in order. Here are some of the basic points that you should consider:
Your Will
Make a Will to:
- Ensure that your estate passes to your intended beneficiaries (e.g. your partner or children) and that the intestacy rules are avoided
- Appoint legal guardians to bring up and care for your children under 18
- Leave assets in trust e.g. until your children are sufficiently mature Appoint Executors and Trustees of your own choice
- Direct business or farming interests to the appropriate beneficiaries and maximise valuable Inheritance Tax reliefs
- Gift personal items to chosen beneficiaries
- Make gifts to charities
- Specify any particular funeral wishes
Keep it up-to-date:
- Review your Will every three years or when tax/financial/family circumstances change
- Make minor alterations by way of a simple Codicil
Pension Death Benefits
Do not assume you have nothing to leave:
- A substantial lump sum may be payable if you die before retirement
- Check that this is held in trust outside your own estate so as to prevent a 40% Inheritance Tax charge on the value of those benefits: if it is not, then place it in trust
Life Insurance Policy Proceeds
Again, do not forget the value of your life policies:
- Do not let the proceeds fall into your estate and suffer 40% Inheritance Tax
- A simple trust can avoid this
Husbands and Wives & Civil Partners
Transfers between spouses and between civil partners are generally exempt from tax, therefore:
- Are your assets held between you so as to maximise tax savings during lifetime and on death (i.e. to make use of both your allowances/ exemptions and lower rates of Income Tax and Capital Gains Tax, in addition to Inheritance Tax planning)?
Gifts
Reduce your estate to minimise Inheritance Tax and make use of available allowances, for example:
- Avoid Inheritance Tax completely by making regular gifts out of surplus income
- Give away £3,000 each year free of any Inheritance Tax
- Make any number of other small gifts of £250 per person per year
- Certain larger gifts can escape Inheritance Tax if you survive the following seven years
Trusts
These can reduce your estate for Inheritance Tax and:
- Safeguard assets e.g. for your children and future generations
- Make use of children's/grandchildren's Capital Gains Tax and Income Tax allowances
Lasting powers of attorney
- A simple document that enables you to choose people you trust to manage your affairs (whether your finances, your health and welfare or both) in the event of loss of mental capacity e.g. in the event of an accident, stroke or in old age April 2008
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