Sovereign Cairo

Death Tax or in the UK Inheritance Tax Inheritance tax is probably the tax that people get the most annoyed about and seem to avoid paying if at all possible. Inheritance tax is payable in the UK by the beneficiary of your estate at a flat rate of 40% on assets above the threshold of ₤300,000.00. Following the announcement in the pre-budget report last October, ₤600,000.00 for married couples and those in civil partnership. The ₤600,000.00 allowance assumes on death, the surviving partner inherits all of the deceased partner’s unused amounts. It is potentially payable on all transfer values, not only on death. However, it is important to try to understand the tax, how and why it works like it does as well as considering some of the planning opportunities that are available to us. It is important to understand that in an article of this type, that it is really only possible to take a cursory look at this complicated tax prior to undertaking any planning, specialist advice should be taken. In this article, we will also consider trusts and their uses. This is because trusts are linked to the mitigation of inheritance tax. It may be that some or all of the first partner’s allowance was used when they died, in which case the surviving partner’s allowance will be ₤300,000.00 plus the unused portions of the first partner’s allowance. When you die, your executor will arrange for your estate to be valued in order to establish whether or not inheritance tax is due. The assets included in the calculation of your estate includes everything owned in your name such as your house, any other property you owned, savings, investments, wine, silver, jewellery, cars, antiques and works of art. The average detached house in England now cost over ₤350,000.00. Inheritance tax is not something that we should ignore. In general terms it is the person who receives the benefit of the gift upon which the liability is based. It is essential to British law that it is possible to arrange one’s affairs to reduce the amount of tax that has to be paid. However, it is generally accepted that inheritance tax is one of the most difficult taxes to mitigate. UK legislation has been written over the last 20 years or so that means if you make a gift, it has to be a proper gift, so that you can no longer benefit from what you have given away. This is because people will try to get assets away to reduce their right to liability, but still benefit from them in some way. The common ways to reduce inheritance tax are 1) outright gifts 2) a loan trust or a gift and loan trust 3) a discounted gift trust 4) Specific investment Some individuals who know that there will be inheritance tax when they die, do not wish to consider any of the options listed previously or they have assets that are not possible to give away for practical or sentimental reasons. There are still options open. Let us consider an individual, his main asset is a house in which they live and there will be an inheritance tax liability on their death of approximately ₤100,000.00. This will mean that the property will need to be sold on death to realize the liquidity to settle the inheritance tax liability. An alternative will be to fund a life insurance policy, written in trust which will payout a cash sum on death which will not be liable to inheritance tax so that the inheritance tax liability on the estate can easily be settled without having to realize any liquid assets. The cost of such a solution of course depends on the age & health of an individual. However, the premiums for the life policy will be paid monthly or annually and the policy will be paid out on someone’s death. It is simply about taking a few views where such an option is attractive and this will of course depend on personal circumstances. This is a brief outline about the UK death tax scenario and of course in other countries there are inheritance tax issues that can be tackled in similar ways. I recommend that if you wish to consider inheritance tax planning that you see a qualified financial advisor who can take you through the process. Putting my neck on the line Many people have asked me during the start of 2009, how when making recommendations to a client do I try and analyze and pick a winning fund? Obviously, this depends on a client’s attitude to risk but there are several factors a financial advisor should take into account when recommending a fund to a client. One fund that I am recommending heavily at the moment to clients who have a medium attitude to risk over the medium to long term is the Jupiter Global Financials fund. Below is a graph of this fund’s performance during extremely volatile times. Philip Gibbs has been running this fund since June 1997. As you can see Philip has constantly outperformed the benchmark and if you look at the volatile time during late 2008, he has grown the fund whereby the benchmark has decreased rapidly. Personal Finance Articles How much risk is too much? Wed, 26th Mar 2008 Nobody likes to take chances, yet sometimes we have to juggle our investments. Answer our quiz to see how risk-inclined you are. Are you A, B OR C? 1. When do you need to access your initial investment and gains? A. Within the next five years B. In the next 10 years or so C. In 15 years or more 2. Do you have accessible cash for emergencies, say, and three months’ income? A. No, my rainy day account is a washout B. Yes, but I can’t resist the sales C. Yes, I’ve had an account for years 3. What are you investing for? A. A cast-iron regular income in retirement B. Security, but a chance to enjoy the finer things in life, and maybe see the world C. I just want to be rich, by any means 4. Which describes you best? A. I worry about my money quite a lot B. I’m willing to lose a little if it gets me what I want C. Life’s a gamble, even if you lose the lot 5. If you invested £20,000 and it fell in value to £15,000 the next month, how would you feel? A. Extremely upset, I’d cash in B. I’d worry, but wait and hope it recovers C. I’d buy more at the new cheaper price Mostly A: Safety first You tend to worry about money, which is good, but don’t let it consume you! You are closer to retirement, so less able to replace lost money through your income. Or you are risk-averse because of past experiences. Low-risk cash accounts and bond funds may be more suitable for you. Look, too, at guaranteed investments, ‘structured’ products invested in other assets but protecting your capital. Mostly B: Everything in moderation You want a balanced portfolio. The younger you are, the bigger the slice that you may want to dedicate to equities. Let an expert choose the best investment managers in bonds, property and shares for your diversified portfolio. Mostly C: Speculate to accumulate You’re willing to gamble to get rich. Equity funds may feature heavily in planning. UK shares are likely to be mid and smaller caps. And overseas equities will appeal, especially Emerging Markets, the BRIC economies (a combination of Brazil, Russia, India and China). Property funds may provide a boring but essential buffer No such thing as a risk-free investment Investment risk comes in many flavours. Understanding the components should help you feel more comfortable. Capital risk: Cash accounts may guard against capital risk, losing part of your original investment, but they are not risk-free, as investors found in the Liberator Permanent Benefit Building Society collapse of 1892. Bank failures in the 1970s, and Barings and BCCI fiascos, led to tough investor protection. Inflation risk: Other investments can fall in value but may have a greater chance of overcoming inflation, eating into the real value of your cash. Equity risk: Picking a good stock does not guarantee its future. But picking a bad one might. Managing risk measures the ability of each fund manager, how far he or she pushes and what they get in return. Specific risk: Every stock, bond or property is different. A start-up company is riskier than an established brand. Dilute individual risks with a diversified basket of shares or different assets. Market risk: When a market heads south, it tends to take every stock with it. Defensive stocks, food suppliers and other essentials tend to lose less value than more speculative holdings. From unadventurous cash to the exotic. Mix and match for a diverse portfolio to suit you. Cash is king Cash means money on deposit. Bank or building society accounts or National Savings are the safest investments, but often fail to beat inflation. Fixed interest Bonds are government and company IOUs, promising to pay a fixed interest over a certain period. Government stock, or gilts, are safest. Corporate bonds can be investment grade, or high yield, more commonly called junk bonds. Property The double-digit property fund returns of recent years are unlikely to be repeated. Commercial property, such as office blocks, is expensive now and less easily sold. But it may still be a good diversifier in any portfolio. UK equities The Blue Chip stocks of the FTSE 100 make up more than 80 per cent of the market. They tend to pay higher dividends, good for income, than their faster-growing, but more volatile, FTSE 250 and smaller stock cousins. Overseas equities New York, Tokyo and European exchanges now compete with Asian Tigers, Latin American and ex-Soviet markets. Established markets offer prestigious names, but emerging markets promise potential high growth. Natural resources Gold, metals and oil are in a ‘super cycle’ as China boosts world demand. Investing in resources stocks means not having to buy gold, but they can be volatile, too. Luxury items You need expertise to judge the racehorse, wine and fine art markets. Remember, many fund managers drive Ferraris, but few would trade them in for their funds!