Tax

After you die, it's not all over

Inheritance tax threshold -nil rate band

£325,000 in 2009-2010, up from £312,000 in 2008-2009. That is the inheritance tax threshold, or nil rate band. Below that amount, you are in the nil rate band, and your estate pays no inheritance tax. Above it, your estate pays 40% IHT on the amount above the threshold.

Example: lf your estate is valued at £500,000 and the nil rate band is £325,000, tax is due on £175,000. And 40% of £175,000 is £70,000.

The nil rate band increases over time. The IHT rate of 40% has been fairly stable.

Double joy for Couples

If the first to die has not given any gifts, the threshold doubles for the survivor. If the first to die uses part or all of their nil rate band, the survivor gets the portion remaining - and that portion will be zero if the entire nil rate band has been used.

If a widow or widower inherits all or part of their deceased spouse's nil rate band, the additional amount may push the survivor above the IHT threshold. To reduce tax, it might be wise for each of them to leave an amount equal to the nil rate band to someone else, say a son or daughter.

"nil rate band" - the Latin words 'nil,' 'nihil' and 'nihilum" mean 'nothing.' Related English words are 'null' and 'nihilism.'

No CGT? A capital idea.

On death, assets that normally might be subject to capital-gains tax can be passed to the executor(s) or personal representatives with no CGT to pay. And if those representatives pass on that asset to the beneficiaries, again, no CGT.

However, CGT is payable on assets which appreciate after the death, subject to the normal rules governing CGT.

Own a business? What a relief!

Owners of businesses qualify for Business Property Relief, but the details can be tricky and the word 'property' deceptive.

Owners of businesses - including Lloyds Names - are entitled to considerable IHT relief but the issues are complex and professional advice is essential.

Don't wait until someone is near death or already on the other side. The total value of the business and the amount held as cash can affect the taxable bottom line, and the sooner a business steers the right course taxwise, the better. The use of the word 'property' in the term 'Business Property Relief' does not refer to bricks and mortar, and property in the sense of houses and flats usually does not qualify for this kind of relief.

Due Dates

After a death, the executors or other representatives of the deceased are required to notify Revenue and Customs within a specified time period.

If tax is due, it must be paid by a certain time.

Accuracy and honesty as well as promptness are important. If an account is fraudulent or inaccurate, financial penalties may result.

Time trials

'Interest is charged on any tax not paid by the due date, no matter what caused the delay in payment.'

Source: HMRC

The taxman is patient...up to a point. He wants the IHT due within six months after the death. But in some cases, the tax can be paid in installment - generally when an asset needs to be sold, and it will take time to sell it.

• The main assets in this category are:
• land and building
• certain shares and securities
• "the net value of a business run for profit, but not the business assets"
• agricultural land and property

Paying by installments does not reduce the tax payable but does reduce the tax burden at any given time. This can be especially helpful, for example, for people who inherit a property they intend to inhabit.

Laws are laws, and rules are rules, but HMRC can exercise flexibility. However, so-called "extra-statutory concessions" have been narrowed due to a recent court case.

The HMRC website details the latest position on extra-statutory concessions, along with the vital small print concerning payment due dates and types.

QSR - Quick Succession Relief

Two deaths in rapid succession can be financially ruinous as well as emotionally devastating. In fact, the tax man allows for 'Quick Succession Relief' - a reduced rate is applied to the second estate.

What do you own, and where is it?

To calculate your worth, start by making a list of current assets and liabilities. Some items are obvious: property, car, bank accounts, stocks and shares. Include, too, household possessions and specific items such as wristwatches, valuable stamp collections or art work, expensive cameras and other possessions.

Remember, too, to allow for gifts made during the previous seven years.

Even if your estate is well below the inheritance tax threshold and you are not interested in financial planning, such lists have various uses.

If you have various possessions that you are leaving to others, the list acts as a good checklist: you can ensure that you have accounted for everything of value that you own, and everyone you intend to benefit.

Such a list will also be helpful to a solicitor, financial planner or other professional you consult. They will request this information in any event. If you provide it in advance, you make the process smoother, easier and more accurate for them, and in saving them time, you should end up with a smaller bill.

And your master list will be helpful too if you make or revise your own will, or if your estate changes, for better or worse.

Avoidance, evasion, 'deliberate deprivation'

If you evade tax and get caught, you might end up in the slammer.

If you avoid tax, you are helping financial advisers, solicitors and others - even HMRC tax inspectors - earn a crust. In other words, you are doing society a favour while also helping yourself and your heirs.

You can, of course, reduce tax legitimately by using it before you lose it - indulging yourself, or giving gifts to others. You can obtain spending money by trading down to a smaller home or releasing equity in your current property.

If you give it away, the Taxman may or may not allow a tax exemption depending on the size of the gift and when it was given. Gifts have the potential to be tax free; by definition then (of 'potential'), gifts also have the potential to not be tax free. In other words, bad timing - bad in the sense of you dying before seven years have elapsed - can be bad news for a recipient of your gift. Instead of being tax free, they may have to pay tax.

If you get rid of assets expressly to avoid tax or fees - for example, to sidestep paying nursing-home fees - you can be challenged on the grounds of deliberate deprivation - and if the challenge sticks, the assets are assumed to still be in your estate.

Leaseholds and freeholds...and thresholds

Many people will face a steep inheritance tax bill merely and solely by virtue of the value of their homes.

The "inheritance tax threshold" - a.k.a. nil rate band - is £325,000 for 2009-2010; it was £312,000 for 2008-2009.

In 1986, it was £71,000. (In just over 20 years, the band more than quadrupled. If that rate of increase continues, the nil rate band in 2030 will be £1.25 million.)

Starting in 1986, the IHT threshold rose to its present level in 21 stages, mostly increasing (never falling) between £5,000 and £10,000 per year. The one dramatic exception in that time period was 1985-1986, when the rise was a full £46,000 - from £154,000 to £200,000.

Not coincidentally, those rises mostly paralleled upward movement in property prices.

NEWS UPDATE On 24 March 2010, Chancellor Alastair Darling announced that, instead of rising, the nil rate band will remain at £325,000 until 2014/15.

War Wounds: When 'Cause' can mean 'Contributed to...'

IHT relief may be available for military personnel or their heirs.

This little-known concept is best illustrated by its best-known example. The 4th Duke of Westminster was wounded in action in 1944. He died of cancer in 1967. The wound did not cause the cancer that killed him 23 years later. But the Duke developed septicaemia as a result of the wound, and the septicaemia did contribute to his cancerous condition.