Aiming at a moving target

By Danny Cox | 20 Aug, 2008 

We will have all seen the values of our investments and properties fall in recent months and an advantage, perhaps not one that we wholly enjoy, is that our inheritance tax liabilities have also fallen.
 
Falls in markets provide good opportunities for tax planning. Capital gains are probably lower than they have been which means that taking profits creates less of a tax problem. Falls in the value of your estate also provides IHT planning opportunities.
 
As an example lets take a situation where you decide to gift a property to your children. Two years ago, the property was worth £300,000. Today it is worth £260,000. When the gift of the property is made, the value of the gift (£260,000) remains in your estate for 7 years, meaning a potential IHT charge at 40% on your early death, an amount of £104,000.
 
However, if and when the housing market improves and the value increases back to its former value at £300,000 (and hopefully beyond) the £40,000 recovery in the value is outside of your estate and IHT free.   
 
Essentially the downturn in markets mean that investments or assets can be gifted or placed in trust so that the growth and recovery in values is immediately outside of your estate. This works well with property but also works with investments, which can be put into trust for your beneficiaries.
 
As with all these types of plans, it is important that you don’t give away or place too much in trust, after all you don’t want to leave yourself short. You also need to be careful of capital gains tax when gifting assets.
 
Our Financial Practitioners can take you through your options and devise a strategy for you. They won’t be able to stop the shifts in values and changes to legislation but will be there to review your plans. Please call 0117 317 1690 for details.