Inheritance Tax Savings for your grandchildren
An example;
Arthur
and Joan Smith have a joint estate of £624,000, including the value of their
home. They have made Wills leaving everything to each other and then to their
children after second death.
Following the recent
legislation contained in the Chancellor Alistair Darling's Pre-Budget Report on
9th October 2007, there should now be no Inheritance Tax (IHT) on first or second
death in this scenario. On first appearance therefore, it would seem that there
is no need for Arthur and Joan to take any action. However in doing nothing, they
might simply be passing on the problem to the future generations as the diagram
shows.
Based
on the assumption that Arthur and Joan's children are both married and their respective
estates are worth £624,000 each i.e. the prevailing nil rate band of £325,000
x 2, any inheritance that either of them receive from Arthur and Joan will simply
increase the value of their estates and be liable to IHT on their demise if they
don't spend it. Therefore the whole of Arthur and Joan's estate could be liable
to IHT when it eventually passes to their grandchildren, a total IHT bill of £249,600!
In addition to this the whole of the estate
will be subject to means testing in respect of the survivors later life care costs
and once passed to the children will be considered part of their estate for any
divorce action or bankruptcy proceedings they may be involved in.
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