By Graham Poles, tax director at Armstrong Watson

Last updated at 15:59, Friday, 06 August 2010

The election is long since over and the coalition, after the emergency Budget, has turned its attention to addressing the budget deficit.

Chancellor George Osborne had intended to raise inheritance tax base rate

• Visit the Armstrong Watson website

For most families this will mean a further tightening of belts as the cuts and tax rises start to bite into how families manage their income now. One of the taxes that remained untouched by the Budget was Inheritance Tax, where the nil rate band has remained frozen and is highly unlikely to rise at all for the next four years. This tax is sometimes forgotten by many people until it is too late, especially when people are focused on just getting through the current economic turmoil.

This tax starts to bite where individuals have assets worth more than £325,000 in their estate, anything over this being taxed at 40 per cent. Married couples do get to double this allowance and so can have up to £650,000 worth of assets before their estates are taxed.

In the years before the election the Conservatives had confirmed that it was their intention to increase the nil rate band to £1m, which would remove most people from the Inheritance Tax net. Unfortunately, as the scale of the economic turmoil unfolded it slipped from the headlines and the proposal was excluded in the coalition agreement. It is perhaps understandable that, while the country struggles to get itself back on its feet after such an economic shock, such a relief is frozen. However, there will be many families who delayed undertaking any planning who will now be forced to revisit this sometimes uncomfortable area.

The truth is that planning to minimise Inheritance Tax does not need to be complicated but it does require the individual concerned to have an idea of their future income needs and asset requirements.

This should be seen as the first building block of all tax and financial planning but is especially true when planning to mitigate Inheritance Tax. This is because to minimise this tax you generally have to give the asset away, or at the very least surrender some of your rights of access to the asset. It is therefore vital that before any assets are transferred away from your estate you are absolutely sure you can maintain your lifestyle without them. This will, of course, be different for each individual and will vary depending upon the amount of assets they own and the income these generate.

Next week, I will examine some of the ways in which parents can begin to pass assets down to their children but, for this week, the message is simply to start thinking about the assets you have; your family home, investments, perhaps second properties or timeshares, insurances policies payable to your estate, your cars and household goods.

If the total value of these assets is more that £325,000 then perhaps now is the time to seek out both financial and tax advice to protect those assets for your family in these challenging times. There is a lot that can be done but sometimes taking the first step can seem the most challenging of all.

• If you require any further information or advice on Inheritance Tax planning email moneymatters@armstrong watson.co.uk or call freephone 0800 195 2161.

First published at 14:11, Friday, 06 August 2010
Published by http://www.cumberlandnews.co.uk