Extracts from Magazine Articles

• Long term care

• Inheritance Tax

LONG TERM CARE AND INHERITANCE TAX PART II – DEMOGRAPHICS OF THE COUNTRY

Aug-2003

In general, we are now living longer, therefore, consideration has to be given to the possible costs of paying for care in our old age.

A secondary issue to this is protecting assets for ones offspring, which is a major concern to most people. There are some basic steps which can help do this, however the funding of future care is more difficult.

In most cases our main asset is our home; ‘Englishman and castles’, and this will become exposed to the Department for Work and Pensions (DWP) in the event of care being required and, if the value exceeds £255,000, it will also become liable to Inheritance Tax at 40% on the excess.

Properties are invariably owned on a joint basis, however an alternative to this would be to amend ownership to ‘tenants in common’.  This means each spouse effectively owns 50% of the house, rather than 100% each, which is a method of separating the asset ownership

The purpose of this is that it allows some planning via Wills and Trusts for Inheritance Tax and Long Term Care.  If an asset is in a sole name, as ‘tenants in common’ each party can specify who this is left to after death and allows the utilisation of a ‘Nil-rate Band Trust’ within one’s will.  Care is required in these cases due to possible problems with gifts with reservation and because everyone’s situation is different we cannot emphasise enough the need for professional advice via an Independent Financial Adviser, Solicitor or both.

The same principles apply to investment ownership, where single named assets allow greater tax planning than those owned jointly.  This is a basic step that can be taken which could save as much as £102,000 on an estate valued at £510,000.  Why make the Inland Revenue one of your principle beneficiaries? (Source Herefordshire Marches Magazine August 2003)

If you would like to arrange an informal discussion then please contact Mark Young on: 01432 820710 or email mark@padstone-fm.co.uk

We work on a commission or fees basis with the initial meeting free of charge.

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June-2003

Have you considered the impact of INHERITANCE TAX upon your estate ?

Inheritance Tax has become increasingly important for everyone to consider in recent years as the price of property has rocketed.

The recent Budget has done little to stem the UK’s growing Inheritance Tax (IHT) liability.  The chancellor increased the nil-rate band ( the threshold above which estates are liable to Tax ) from £250,000 to £255,000. This represents an increase of just 2 per cent, hardly keeping up with inflation. Assets in excess of this are taxed at 40%.

By contrast, according to Nationwide Building Society, the average property price in the UK has risen by 22.2 per cent over the past 12 months (source Nationwide House price data April 2003). This means that more and more estates will become liable to Inheritance tax, in some cases even without the inclusion of other assets such as investments or personal chattels.

There are a number of different ways of mitigating an IHT liability and much will depend on your individual circumstances and we would recommend advice is sought in this complex area of financial planning.

Another interesting point is that while it is widely assumed that because ISAs ( and PEPs ) are tax-free during the investor’s lifetime, that they are also exempt from IHT. This is not, in fact, the case.  Nor is it possible to write an ISA in trust.  Those with a portfolio of investments of this type who have an IHT liability may be better to invest in a product which enables them to carry out Inheritance tax planning.

It is possible that an investor who had taken advantage of his full PEP, TESSA and ISA allowance every year since inception, and had achieved an average return on each, would have amassed an amount which in itself was almost in excess of the nil-rate band for IHT.

IHT receipts in the UK have almost doubled in the last 10 years and in 2001/2002 this figure reached £2349m.  Figures from IFA Promotion suggest that more than £1bn of this is paid unnecessarily (source IFAP research data 2002)

(Source Herefordshire Marches Magazine June 2003)

For a copy of our ‘One minute guide to Inheritance tax’ and ‘Trust summary’ please call  01432 820710 and ask for Heather or Mark or contact us by e-mail

Padstone Financial Management Ltd is authorised and regulated by the Financial Services Authority.