Tackling a potential IHT issue

The fall in the value of assets such as shares, buy-to-let properties and holiday homes to their lowest levels in years, combined with a historically low capital gains tax rate, may be prompting more and more taxpayers to give away surplus assets to minimise future inheritance tax (IHT) bills. If you are considering tackling a potential IHT issue, now is a great time to discuss this with us.

This current slump in asset values may present appropriate taxpayers with a rare opportunity to pass on assets while paying substantially reduced capital gains tax (CGT). The reduction in the CGT rate from up to 40 per cent to a flat rate of 18 per cent in April last year may also reduce the potential tax bill on assets gifted away. For lifetime gifts, the value of assets for IHT purposes is determined at the time they are given away, so while valuations are low, it is worth considering the advantages of gifting assets now.

So long as the gift is an outright gift to an individual and the donor survives seven years after making the gift, there will be a significant long-term tax saving. And with the IHT rate at 40 per cent, the long-term tax saving could be very significant. If there is a risk that IHT becomes due on gifts made prior to death, it is important for taxpayers to consider making gifts while asset values are low.

Lifetime gifts use up the nil-rate band first upon death within 7 years. This will affect the allowances and the actual tax paid on the estate. The nil-rate band is the amount up to which an estate will have no IHT to pay and is currently if you are single £325,000 (2009/10), or are married or in a registered civil partnership £650,000 (2009/10).