Where there's a Will, there's a way.

Published on 28th September 2009

According to new research*, one in three Britons dies without leaving a will. Without a will, your estate may be liable to an Inheritance Tax that prevents your loved ones from fully benefiting from the wealth that you have worked so hard to build up. You also risk your estate falling into the wrong hands.

Many people assume that when they die their spouse will inherit everything they leave behind; however in reality, without a proper will in place, much of your estate could end up in the tax mans hands. There are a number of different ways to save on this dreaded tax and with a little planning and a good will; you can make sure your loved ones are the ones to benefit from your years of contracting.

Gifts are not just for Christmas

If you start planning early for Inheritance Tax (IHT) then there are a wide variety of options available to you or your parents. Gifts can be made to loved ones that are free from IHT as long as you make them at least seven years before you die and don't retain any benefits. For example, if you wanted to gift away your house then you would not be able to continue living in the property unless you pay rental at the market rate. The gift method is therefore more suitable for passing on money or possessions.

You are entitled to give up to £3,000 a year away without paying IHT and this applies to both spouses so a married couple can gift £6,000 per tax year. On top of this you are entitled to give each of your children £5,000 when they marry and you can make gifts of up to £250 as often as you like.

Regular payments from your income are totally exempt as long as they do not affect your standard of living but as with all of the above gifts, it is important to keep a record of any payments made. It is a good idea to keep a file with details of any gifts made, including the dates, amounts and who they were gifted to. This will save any IHT problems later on.

Set up trusts to protect your assets

A trust can be a useful tool in lowering your IHT liability without losing control of your estate. These can be helpful if your beneficiaries are very young or may be about to divorce and you need to protect the assets for them. They can also be useful if you are going into long term care as putting your assets into a trust prevents them from being counted when your liability for care costs are calculated.

If assets are in a trust and therefore deemed to be outside of your estate then they cannot be considered when you are assessed for help with the costs of long term care and this can save your estate a fortune. As with gifts, trusts take seven years to leave your estate for IHT purposes, but trustees are able to alter how the trusts assets are distributed and as such there is more control. There are also trusts that allow you to set them up to provide an income for you and others that enable some of the assets and any growth to be immediately classed as outside of your estate.

Your life insurance policies can also be put into trust which prevents them from being susceptible to IHT when paid out on death. It is important that you ask for this when you set up your life insurance policy as unlike pension providers, many insurers and advisers without the specialist estate planning knowledge required will not automatically put your policies into trust.

Seek expert IHT advice

The options available for IHT planning can be confusing and it is vital that you get it right in order to minimise the amount of your hard earned assets that can be stripped away by HMRC.

The expert advisers at ContractorFinancials can help you to make the most of your IHT planning and ensure that your assets remain in the hands of your beneficiaries rather than those of the tax man.

* research conducted by the law society

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