Cash Clinic: Nearing retirement, how can we escape inheritance tax?

Q. MY HUSBAND and I are in our early sixties and are considering redoing our wills before we retire. We own two homes with a total value of £420,000 and have investments, shares, savings and pensions worth about £210,000.

We want to avoid paying inheritance tax (IHT) if possible. Is there any advice that you give us on how we can do this? Any help you can offer would be much appreciated.

RT, Anstruther

A. IHT may be charged at 40 per cent on the value of your estate over the nil rate band of 325,000.The band has remained the same for the tax year 2010-11.

Ifyour husband leaves everything to you in his will and dies before you,it may be possible for both of your nil rate bands - 650,000 in total- to be available on your subsequent death, which would fully cover your joint estates, thereforeavoiding IHT. The same would apply in the reverse situation, if you die before your husband.

This depends on you each having the full nil rate band availableand not having made any significantgifts to anyone elsewithin theseven years prior to death, as theseare taken into account and may result in an IHT liability. Remember also that property and investments can increase in value and you do not knowof coursewhat the value of your estates will be when you die.

Check the arrangements for any life assurance policies as they may also be factored into the IHT calculations. Also, many pensions providers pay out a lump sum when someone dies, and it may be possible to ensure that any lump sum goes directly to your beneficiaries and avoids being counted as part of your estate for IHT purposes.

If, after these considerations, you think there could be a tax liability, you could consider making lifetime gifts to individuals or to trusts, utilising exemptions and reliefs wherever possible and make tax efficient investments, always having regard to your own future needs and financial security.

It is essential that you seek specialist legal and financial advice on these matters before proceeding.

• Glen Gilson is a partner and head of private client and financial services at HBJ Gateley Wareing.

If you have a question, write to Jeff Salway, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [email protected].

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.