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Inheritance tax (IHT) has been described as a voluntary tax. It is true that some very large Estates have passed to the next generation with little or no tax paid, and much tax can be saved by using the exemptions which are available.
Giving assets to your children (or others) more than seven years before you die can save IHT of up to 40% of the value of the asset. If it is that easy, why does anyone pay IHT?
The IHT legislation allows the Inland Revenue to tax assets which you do not own, but where you have an interest in possession, i.e. you have the use or a benefit from the asset as if you owned it.
One example is where a person leaves some investments to one person (Mr A), but the income on those investments to another (Miss B) during her lifetime. On the death of Miss B, the capital value of the investments will form part of her Estate, even though she never had access to the capital.
Another example would be parents giving their home to their children and continuing to live there, known as a gift with reservation (GWR).
We can advise on redrafting of the many Wills which are subject to a pitfall that has arisen because of a change in interpretation of this legislation.
See also Inheritance Tax, Inheritance Tax Plan, Inheritance Tax Trap, Joint Ownership, Giving
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 28 September 2002.