inheritance tax

ffoeg

Are all monies subject to inheritance tax, eg, assurance monies?

dunstonh

no.

dunstonh

don't misread my answer.

You ask if all monies are subject to IHT eg assurances?

I said no because there are some things that are not. However, not all life assurance's are exempt. It depends on the trust used, if any.

If the plan isnt a pension term assurance and isnt written in trust, then there is the potential for IHT.

The first £263,000 is exempt from IHT. Any value in the estate above that amount is subject to IHT. There are ways to reduce the liability (such as trusts).

ffoeg

So are you saying that it has to be both 'in trust' and 'pension termed' and even then there is a potential for IT

And are you refering to 'potential' because if the 263,000 is exceeded IT will be applied.

Are there fixed rules to IT, or is it designed to be grey so that it can be applied arbitarily?

dunstonh

Are there fixed rules to IT, or is it designed to be grey so that it can be applied arbitarily?

The rules are actually quite easy at present. There is an expectation that Labour will hit inheritance tax if they win the next election. God knows what will happen then.

There are variables though which make it harder and there are things you can do to get round the rules. Such as changing the will of the someone after they die to reduce the IHT liability.

So are you saying that it has to be both 'in trust' and 'pension termed' and even then there is a potential for IT

No quite but nearly. lets assume you are married and take out a joint life, first death policy and dont place it in trust. In the event of one of you dieing, the other gets the payout with no tax liability, irrespective of the size as there is no liaility for IHT between spouse. (however, if the partner then dies, the next person to get the funds left over would suffer a IHT liabilty ie the children, if the amount of the estate is over 263k)

If however, you are single but have children. You have a level term assurance policy that isnt written in trust. If you die, the money goes directly into your estate and is therefore liable for IHT calculation. Had that policy been written in trust to the children, then it would bypass your estate and be paid directly to the children with no IHT liability. If they were not old enough, then it would be a trust fund for their benefit.

A pension term assurance is a term assurance that comes under pension rules and is a trust in itself so can bypass the estate. However, due to changes made a few years ago in contribution limits, these are not as popular as they were years ago. You can really disregard this option now. However, anyone with one of these already doesnt have to worry about the new limits (as much).

ffoeg

Thanks, that is very informative.

We are not married and have a child - to avoid IT can we in our wills, divide up what we leave to our partner and child or is the 'Pot' taxed then divided up?

I hope this makes sense

Bossyboots

The "Pot" is taxed and then divided up.