About Inheritance Tax (IHT)
You may be nervous about moving in to a retirement flat, something that should be considered is whether you plan to leave a legacy to your spouse and/or children. If you do you should
take steps to reduce your estate’s liability to Inheritance Tax (IHT).
After deducting the nil-rate band (which is £325,000 in the 2009/10 tax year), your remaining estate is liable to Inheritance Tax at 40%. So, even if you've never paid higher-rate tax during your working life, you could hand over two-fifths of everything you own in excess of the nil-rate band when you die.
There are a few steps you can use that are perfectly legal to reduce your liability:
- Recent legislation means that on your death the unused proportion of your nil rate band can be claimed by your surviving spouse or civil partner for use on their death.
- You can use your annual exemptions. Every tax year, you can gift up to £3,000. In addition, any unused exemption from the previous tax year can be carried forward to the current tax year, but no further. You can make small gifts. Each tax year, you can gift up to £250 to any number of people, completely free of IHT. A pair of grandparents could give each six grandchildren £250 a year, a total of £3,000 a year.
- You can make marriage gifts. A parent can gift £5,000 to a child on the occasion of their marriage; a grandparent can gift £2,500; other persons can gift £1,000 - all completely free of IHT.
- You can make regular IHT-free gifts out of income, but you must show that these gifts are habitual and are made from post-tax income, and leave you with enough income to maintain your standard of living.
For more information on financial planning, speak to an independent financial advisor.
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