Keeping it in the family

Once it was only a problem for the rich, but today a third of UK households are now liable for Inheritance Tax (IHT) – and this almost certainly includes many people in the dental profession.

As house prices continue to rise, more and more people are discovering that, often due to the cost of their property alone, they now have a potential liability to IHT.

So how does it work? Well, in the current tax year, only the first £285,000 of your total estate (known as the nil rate band) is free of IHT. Everything above this amount is subject to 40% tax when you die. With house prices as high as they are, it doesn’t take many additional assets (savings, cars, jewellery, antiques etc) for people to find they could be in a position where they leave their families and other beneficiaries facing a potential tax bill on their death. In the 2006/07 tax year, the Inland Revenue is expected to raise about £3.6 billion through IHT.

There are many ways in which you can reduce your IHT liability, or in some cases eliminate it altogether. It won’t be something you yourself will have to pay on your own estate as it becomes due after your death, but it will be an added burden for your family at a time when they may be least able to deal with it.

One misconception is that your loved ones can use their inheritance itself to pay the bill – they may not be able to receive anything from your estate until after they pay the IHT bill.

All it takes is some tailored forward planning. There are some simple, immediate solutions out there including making use of your exempt gift allowances. This means that you can give away certain amounts of money (e.g, a wedding gift of £5,000 to each child) or use your annual exemption to give away £3,000 in any one tax year.

It could be that you just need to make an appropriate will that reflects your IHT situation. The rules and regulations surrounding IHT are constantly changing and are far from straightforward, so professional advice should be sought.

If you think you could be liable for this tax, don’t sit back and ignore it – make an appointment to see a specialist IHT adviser.

The sooner you start to think about it, the sooner you can start planning to do something about it. You could save much more of your hard earned cash for your family and loved ones instead of leaving it to the taxman.

Case study:

Mr A is a dentist living in the south west of England. He is married and they have a house worth £403,758, cars worth £25,000 and other assets totalling £70,000. They therefore have an estate worth £498,758. With no planning to reduce IHT, if the couple die, their two children could face a tax bill of £85,500. This amount will usually have to be paid before anyone inherits from the estate.

However, if the couple were to take IHT advice and plan accordingly, the bill could be substantially reduced or even eradicated.

Deborah Robinson works for the Medical Insurance Agency (MIA), which has been providing specialist personal and corporate financial advice to the dental and medical professions since 1907. Its Inheritance Tax planning service has helped thousands of clients. For further information contact MIA on 0800 032 1896 or visit

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