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Inheritance Tax

All of us may leave an Inheritance Tax (IHT) liability if the value of our estate on death exceeds £312,000 (tax year 2008-09) or £624,000 for married couples or those in a civil partnership.

Estates over this 'nil rate band limit' will attract tax at 40% on the balance. For example if you are single and your estate is worth £412,000 the tax liability will be 40% of £100,000 (the difference between the nil rate band of £312,000 and the total value of the estate) and your estate's tax bill would be £40,000.

A range of gifts that you may make are exempt from Inheritance Tax considerations. On top of the various exemptions come the most important IHT get-out clauses, the potentially exempt transfers, which apply to any gifts you make above the exemption limits. Providing you survive seven years from the date of your gift, this gift will be exempt from IHT. If a gift becomes chargeable because of your death within seven years, then, in some instances, taper relief may reduce the tax payable.

Be aware that if you gift an asset but retain the benefit it may be treated as still forming part of your estate on death. If you made a gift of property but continued to live in it rent-free or retained a benefit then you may face an Income Tax charge on an annual basis on the benefit you are receiving and the property may still qualify for IHT.

Whatever your age there are steps you may take to help reduce the amount the taxman can claim when you die. Expert and efficient tax planning together with professional independent financial advice is the answer.

If you have trust arrangements in place or are considering using them it is vitally important that you take independent financial advice to make sure they are tax efficient.

Through the proper organisation of your affairs, together with independent financial advice, it can be easier than you may think to mitigate your IHT liability while retaining control of your assets.