Making the most of an inheritance requires a seven-year perspective

Q MY HUSBAND and I are in our early sixties and are considering rewriting our wills. We own two properties with a total value of just over £400,000 and have shares, savings and pensions worth about £200,000. We want to avoid paying inheritance tax if possible. How can we do this?

MK Edinburgh

A AS A general rule, you should review your will at least every three years, although it is also important to recognise that wills may only be one part of a succession planning exercise.

Inheritance tax (IHT) may be charged at 40 per cent on the value of your estates over the nil-rate band of 325,000.

The Chancellor stated in his Pre-Budget Report in December that the nil-rate band will remain at 325,000 for the next tax year. It was previously going to be raised to 350,000.

If your husband leaves everything to you in his will and dies before you, there would be no tax to pay, and 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, avoiding tax altogether. 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 available – that is, neither of you has made any large gifts to anyone else in the past seven years.

Remember also that property and investments can increase in value and you do not know what the value of your estates will be when you die. All gifts made within the seven years before death are taken into account and may result in an IHT liability.

Although you indicate your assets would be covered by your joint nil-rate bands, please also check the arrangements for any life assurance policies as they may also be taken into account. Also, many pension providers pay out a lump sum when someone dies, and it may be possible to complete a form of nomination confirming who should benefit, so 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 well be a tax liability, you could consider making lifetime gifts to individuals or to trusts, using 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 advice on these matters.

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

If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, 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.