• Pass your estate to your children and not the Inland Revenue
• Protect the people who are important in your life
• Keep your estate intact

Inheritance tax is levied by the Government at 40% on the part of an estate which exceeds a certain limit subject to exemptions and reliefs. The IHT threshold in the 2010/11 tax year remains at £325000 and this will then be frozen for the next four years.

Who does it affect?
There is a misconception that only the very wealthy should be concerned about inheritance tax; the rise in property prices means that increasing numbers of people are leaving estates which exceed the tax threshold.

People whose estate previously never approached the limit, but who bought their houses a considerable time ago, are often shocked by the value of the assets they have accumulated. And, largely because of the lack of proper planning, many of them end up paying far more than they need to in Inheritance Tax.

Why think about inheritance tax
It's never too early to carry out a valuation of your assets to help you see where your family will stand. And you may be surprised by the results.

When you list your assets, remember to:

• use current valuations for property (you might think about what similar properties in your area have sold for recently)
• include any antiques, art or family heirlooms (their monetary value may be irrelevant to you, but it will be very relevant to the Inland Revenue)
• include all shares stocks, savings accounts investments, pension and insurance policies
• Business Ownership (subject to various reliefs)

Action
If it looks as if you are reaching the tax threshold and an inheritance tax charge, you should consider taking action. There three basic options when faced by the possibility of IHT, they are; Do nothing, Insure against possible exposure, Gift. Many people look to exploit the third option by setting up a trust.

Why use a trust?
A trust is a way of ensuring that property is held for the benefit of other people without giving them full control over it. It's established where there is a transfer of an asset by a person (the settlor) to other people (the trustees) who must hold and administer the gifted asset (the trust fund) for the benefit of specified people (the beneficiaries) in accordance with the terms of the trust. Since the significant changes introduced in the budget in March 2006, this option needs to be carefully examined before pursuing.

The following are common questions asked about inheritance tax.

Who could benefit from my estate?
The first thing you need to do is decide who should benefit from your estate. Some types of estate planning pass the eventual tax liability on to the person who benefits. For example, any assets passed between a husband or wife who live in the UK are exempt from inheritance tax. However, passing assets between a husband or wife could simply delay the inheritance tax liability. So you may want to skip a generation and pass your assets on to your children or grandchildren, for example.

Does making a will solve all the problems?
Making a will is the first and most important step in estate planning. If you don't have a will when you die then the people entitled to benefit may not be the ones that you wanted to benefit and can include extended family under the intestacy rules. There are ways to avoid this happening, such as setting up a trust for your beneficiaries.

Is it important to keep a will up to date?
Once you have written a will, you should review its contents from time to time to make sure that it meets your current wishes and takes account of any changes in your circumstances.

Can people outside the family benefit?
Yes. Gifts to charities or political organisations are exempt from inheritance tax, whether they are included in a will or made before death. If you want other individuals to benefit, you need to consider the potential inheritance tax liability when making the gift.

Do husbands, wives and civil partners have special inheritance rights?
Anything passed to husbands, wives and civil partners is free of inheritance tax so long as they live in the UK. Remember, however, that this will increase the size of their estate and its potential inheritance tax liability, so it may be worth leaving a large part of your estate (up to the value of the nil rate band, which is £325,000 for 2010/11) to your children or grandchildren.

What happens to the payments from a company pension scheme?
You should make sure that the list of nominated beneficiaries in your company pension is up to date. There will be no inheritance tax payable if the benefits pass to an exempt recipient, for example, your widow or widower. In many pension arrangements the individual has no real control over who receives the death benefits as it is down to the discretion of the scheme trustee or administrator. In such cases, the death benefits should not be liable to inheritance tax.

Does it make a difference if I retire abroad?
It may. Your assets may be subject to both UK and foreign tax if you live abroad. It's very important to consider what your long-term intentions are and how these will affect your estate, as you may need to plan differently.

Tax assumptions are based on current legislation which may change in the future.