A recent global study has found that the UK has the second highest death duties in the world. Currently, inheritance tax is payable at a rate of 40% on any assets in an estate in excess of £325,000 for an individual or £650,000 for a married couple. The government has announced this £325,000 limit is to remain in place until 2019.
According to the Office for National Statistics, the average London house price is in excess of £458,000, so many people will be caught in the tax net on death.
Inheritance tax can be avoided by gifting assets to children outright, but if you die within seven years of making the gift, the assets may become subject to the tax.
However, the UK also experiences high divorce rates, and England and Wales is often described as the divorce capital of the world, given the large sums awarded to less wealthy spouses. Would one be happy if assets passed down through the family are consequently sold off on a child’s divorce? As a result, outright gifts of assets to children may not be desirable.
One of the most flexible means of gifting assets to future generations, but retaining control of those assets, is through the use of trusts. One also can defer a decision on when any children or grandchildren should benefit and to what extent. Subject to personal circumstances, in general an individual can gift £325,000 every seven years to a discretionary trust free of inheritance tax, plus £3,000 per annum, plus regular gifts out of taxed income and gifts of tax favoured assets.
TMF Group can assist you both with the creation of trusts and their on-going management, dealing with any necessary administration, accountancy and tax compliance. We can also act as trustee if required. For further information, please contact Vince Cheshire, UK Director of Private Client Services, at vince.cheshire@tmf-group.com or call him on +44 1582 439270.
The above is for general guidance only. No action should be taken without seeking specific UK tax advice.