Shacter, Cohen & Bor - CHARTERED ACCOUNTANTS
INHERITANCE TAX

Clients should remember to take advantage of the annual exemptions which are:-

 
£
Annual gifts per donor
3.000
Small gifts per donee
250
Gifts on a marriage - from a parent
5,000
  - from a grandparent
2,500
  - other
1,000

Current rates of Inheritance Tax are is follows:-

RATES ON CUMULATIVE TRANSFERS

Rates
2004/05
2003/04
2002/03
 
£
£
£
Nil on first
263,000
255,000
250,000

40% on excess

Chargeable lifetime transfers (e.g. to discretionary trusts) 50% of death rates apply subject to taper relief which reduces the tax due.

Years between gift & death
0-3 3-4 4-5 5-6 6-7
% of tax due
100 80 60 40 20

Main Exemptions

Spouse - both UK domiciled
(or transferor non-domiciled)
Unlimited
Non-domiciled spouse - UK domiciled transferor
55,000
Annual gifts per donor
3,000
Small gifts per donee not exceeding  
250
Marriage gifts made by - parent
5,000
  - grandparent
2,500
  - other
1,000
Charities and political parties.
Unlimited

Regular gifts out of surplus income are also exempt.

Special relief's exist for qualifying business property and agricultural property.

Many clients estates will now exceed the Inheritance Tax threshold simply based on the residential home. It is now more important than ever to consider as early as possible Inheritance Tax planning.

Any clients considering their estate should contact us as we have an overview of clients' financial affairs and we can suggest various schemes and tax planning exercises.

We are also now dealing with obtaining the grant of probates, which, as we have a detailed knowledge of the deceased's affairs, is often quicker and more economical for clients. At present it is possible to vary the way an Estate is distributed, but the ability to vary a Will has been challenged in parliament. You should ensure that you have a Will which is regularly subject to review so that it meets change in circumstances.
TAX TREATMENT Of
PRE-OWNED ASSET

In his recent budget statement the Chancellor announced plans to introduce a tax charge on these people who enjoy beneficial use of an asset which they used to, but no longer own. the measure will be introduced as a response to people removing assets from their taxable estate, often their home, which they pass on by way of a gift to family members, but continue to benefit from use of the asset as if they still owned it, so, for example with a house, the house is gifted to children to remove it from Inheritance Tax, which also means that it cannot be sold in future to pay Local Authority nursing home fees, but the house continues to be occupied rent-free by parents or elderly relatives. Under these circumstances, a taxable benefit will apply from 6 April 2005.
These rules will apply both to tangible Assets, such as land and living accommodation, and intangible assets such as Insurance Policies.
Tax payers will be able to check for special transitional treatment which they must elect for before 31 January 2007, so that the property in question will be treated as part of their taxable estate for IHT purposes, while they continue to enjoy it essentially the same way as the existing "gift with reservation" rules.

The cash value of benefits will be determined by reference to market rentals in the case of houses/land and by reference to inputted percentages of capital value in the case of chattels and intangible assets.

HUSBAND & WIFE COMPANY


As we reported last year the Inland Revenue are currently attacking situations where both husband and wife own shares in a company but they contend that the husband does all the work but the wife receives benefit by way of a dividend. The test case is now going through the Courts. The Revenue in the test case have dropped the demand that if they win they will raise assessments going back six years and are now only dealing with the current year. However, the outcome is yet to be decided.

WIFE'S WAGES
(or wages paid to other family members/casuals)

Where wives take a role in the family business, they can be paid a wage. The maximum current level that can be paid from 6 April 2004 without giving any tax or NIC liability is at a rate of £91.00 per week.

Where clients are paying wages to their wives a payment needs to be made and recorded in the books and records of the business.
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31 Sackville Street, Manchester, M1 3LZ. Telephone: 0161-236 3909 Facsimile: 0161-236 8490 reception@shacter-cohen-bor.com
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