Can I avoid paying inheritance tax?
With inheritance tax, you can avoid pay it by mitigating inheritance tax. You can make the burden less with tax planning. The present Chancellor has done his best to stop some of the schemes that were being used to mitigate inheritance tax, but perhaps the most widely used scheme which is relevant to the average man in the street and his wife or civil partners is the Nil-Rate Band Discretionary Trust. In the average will for husband and wife partners, the wills say, “I leave everything to surviving spouse/partner”, but, if there's no surviving spouse (i.e. on second death) then everything is to be divided amongst the children. The inheritance tax effect of that is that on the first death because of surviving spouse exemption there is no inheritance tax payout at all. But, on the second death, the surviving spouse has his or her Nil-Rate Band which is presently 300,000 pounds, and above that, inheritance tax is charged at 40% on the excess. Now in the example that I've described, what the tax-payers have failed to do is to take advantage of the Nil-Rate Band which might have been available on first death had they considered it. Now I won't get into full details of a Nil-Rate Band Discretionary Trust, but the object of a Nil-Rate Band Discretionary Trust is to preserve the Nil-Rate Band that was available on first death and hold it over to second death. So, in taxation terms on the second death there are two Nil-Rate Bands available which would total 600,000 pounds as opposed to just simple 300,000 pounds.
