1. YOUR HANDY GUIDE TO
INHERITANCE
TAX
How to leave more to those who matter
– rather than the tax man

3. In the past, inheritance tax (IHT) was seen as something that
affected only the very wealthy. But with the rising standard of
living and the ever increasing cost of housing, you may be
surprised at just how many people now fall into the inheritance
tax band.
The relatives of people who would never have considered themselves ‘rich’ are
finding themselves with an unexpected tax bill that could have been avoided.
With a little knowledge and advice you can help ensure that your own family will
not have to face this problem.
This handy guide from Prudential will give you a broad understanding of inheritance
tax, and explain the sorts of things you can do to reduce your liability for it. We’ll
also let you know where you can get further information and help.
3

4. YOUR WAY
AROUND THE GUIDE
UNDERSTANDING
INHERITANCE TAX
Page
1 Inheritance tax (IHT) explained 6
2 How rising house prices can make 8
you liable for inheritance tax
3 How inheritance tax works 10
4 How to calculate your 12
inheritance tax
Information and examples in this 5 How your domicile may affect 14
handy guide are based on our inheritance tax
understanding, as at May 2007,
of current taxation, legislation and
HM Revenue & Customs practice,
all of which are liable to change
without notice.
4

5. DECISIONS TO MAKE AND FINALLY
Page Page
6 What you can do about your 15 Technical terms explained 30
inheritance tax liability
7 Five easy steps to inheritance 16
tax planning
8 How to get going – a checklist 28
TAKING ACTION
Page
9 What to do now 29
5

6. 1 INHERITANCE TAX (IHT) EXPLAINED
UNDERSTANDING INHERITANCE TAX
Inheritance tax is a tax on the assets that belong This could include:
to you when you die. ‘Assets’ include the total of
property
everything you own and a share of anything you
own jointly. investments
insurance policies (unless in an appropriate trust)
payment from a pension plan or employee death
benefit (unless in a trust)
other assets e.g. cars, collections, jewellery,
furniture
gifts you have made but still benefit from, for
example a house that you have given away but
still live in
certain gifts which you have made in the last
seven years
assets held in trust from which you receive some
personal benefit, for example, an income.
6

7. 1 INHERITANCE TAX (IHT) EXPLAINED
UNDERSTANDING INHERITANCE TAX
continued
For the tax year 2007/2008 no tax is charged Everything above that is taxed at 40%.
on the value of your estate up to £300,000. For example, on an estate worth £400,000, the tax
This is known as the nil rate band or the inheritance charge is calculated as:
tax threshold. £400,000 – £300,000 = £100,000 x 40% = £40,000
This represents 10% of the whole estate value. Further
examples are given below.
HOW MUCH OF YOUR ESTATE WILL BE EN ROUTE TO THE TAX MAN
Estate value Inheritance tax bill Proportion of the estate as IHT
Less than £300,000 £0 0.00%
£400,000 £ 40,000 10.00%
£500,000 £ 80,000 16.00%
£600,000 £ 120,000 20.00% What’s more, the
£700,000 £ 160,000 22.86% inheritance tax bill
£800,000 £ 200,000 25.00% must be paid before
£900,000 £ 240,000 26.67% the rest of your estate
£1,000,000 £ 280,000 28.00% can be released to your
beneficiaries.
PRUDENTIAL www.pru.co.uk 7

8. 2 HOW RISING HOUSE PRICES CAN MAKE YOU
UNDERSTANDING INHERITANCE TAX
LIABLE FOR INHERITANCE TAX
The starting point for inheritance tax is currently When you add to the equity in your home your savings
£300,000 (tax year 2007/2008). That may sound like accounts, PEPs, ISAs, TESSAs, life assurance plans not
a lot of money, but Prudential believes that the main written in trust (including death in service benefits
reason for the increasing number of people falling into provided by your employer), stocks and shares, jewellery,
the inheritance tax band is rising house prices. If you your car and so on, the value of your assets can
consider that the average house price in the UK is mount up very quickly indeed.
£186,954*, it’s easy to see how more and more people
are finding themselves liable for inheritance tax.
THE RISE IN HOUSE PRICES, OVER THE PAST 5 YEARS, COMPARED WITH THE RISE IN THE IHT THRESHOLD
Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006
Average UK house price * £ 121,137 £ 140,687 £ 161,742 £ 170,043 £ 186,954
Percentage increase 16.1% 15.0% 5.1% 9.9%
IHT threshold (nil rate band)** £ 250,000 £ 255,000 £ 263,000 £ 275,000 £ 285,000
Percentage increase 2.0% 3.1% 4.6% 3.6%
Average UK house price
48.5% 55.2% 61.5% 61.8% 65.6%
as % of the IHT threshold
*Source: http://www.hbosplc.com/economy/HistoricalDataSpreadsheet.asp, **Applicable from 6 April each year.
March 2007. The figure for tax year 2007/2008 is £300,000.
Source: HM Revenue & Customs, March 2007.
8

9. 2
UNDERSTANDING INHERITANCE TAX
HOW RISING HOUSE PRICES CAN MAKE YOU LIABLE FOR IHT continued
Most people don’t like to think about what will happen As Benja
min Fra
when they die. Which is probably why we avoid making famous nklin
ly said:
a will or taking a serious look at our money and the “NOTH
ING CAN
financial impact our death will have on our families. TO BE BE SAID
CERTA
However, Prudential can help to make it easier to sort IN EXC
DEATH EPT
AND T
out your affairs. We’ll show you how, with a little AXES”
forward planning, you can save your family financial pain
and ensure that they – and not HM Revenue & Customs
– will benefit from your estate.
WHAT YOU CAN DO ABOUT INHERITANCE TAX
There are a range of options that can help reduce or
remove the potential tax liability on your death. In this
pocket planner we aim to give you a better understanding
of some of the rules around inheritance tax and some
information about possible solutions to your inheritance
tax problem. However, individual circumstances vary and
it is recommended that you seek personal advice from
your Financial Adviser before taking any action.
PRUDENTIAL www.pru.co.uk 9

10. 3 HOW INHERITANCE TAX WORKS
UNDERSTANDING INHERITANCE TAX
The following example is designed to represent a typical EXAMPLE: MARGARET
situation and does not relate to any particular individual.
You should not look upon this as financial advice or Aged 63 and a widow, Margaret died in April 2007
a recommendation of a particular course of action. when the inheritance tax threshold was £300,000.
Margaret’s assets:
Her house £ 250,000
Her car, household items, clothes, £ 36,000
jewellery, etc.
Her investments £ 180,000
Total assets £ 466,000
Less:
Her debts and funeral expenses – £ 9,000
Margaret’s estate £ 457,000
10

11. 3
UNDERSTANDING INHERITANCE TAX
HOW INHERITANCE TAX WORKS continued
WHEN INHERITANCE TAX IS PAYABLE
Inheritance tax is normally payable within 6 months
IHT at 0% (on the first £300,000) Nil
from the end of the month in which death occurs
IHT at 40% (on remaining £157,000) £ 62,800
and needs to be paid before your estate can be
Inheritance tax bill £ 62,800 released to your beneficiaries. This means that there
can be delays in the distribution of the estate. It might
The tax bill of £62,800 represents a tax charge of 13.7% be necessary to take out a short-term bank loan to pay
of the total value of Margaret’s estate. That means £1.37 the inheritance tax bill. In addition, interest is charged
in every £10 of Margaret’s estate goes to the taxman. on any overdue tax – which can become an additional
This bill will have to be paid in full before the estate can cost to the estate.
be released to her two children. As Margaret’s children
don’t have the money to pay it, they need to take out
a short-term bank loan.
PRUDENTIAL www.pru.co.uk 11

12. 4 HOW TO CALCULATE YOUR INHERITANCE TAX
UNDERSTANDING INHERITANCE TAX
If the value of your estate for inheritance tax Use the Estate Calculator opposite to work out
purposes is more than the threshold (£300,000 your potential liability to inheritance tax.
for tax year 2007/2008), inheritance tax will be
due on death.
Remember that your future circumstances may change
your inheritance tax position. For example, you may
become the beneficiary of someone else’s will, which
may mean there will be an even higher bill for your
beneficiaries to pay. You should review the situation
whenever your financial circumstances change.
12

13. ESTATE/IHT CALCULATOR OTHER ASSETS
UNDERSTANDING INHERITANCE TAX
Gifts where you have retained a benefit £
Taxable gifts made within the last 7 years £
YOUR MAIN ASSETS Interests under trusts £
Current house value £ Total of other assets £ B
Bank account £
YOUR LIABILITIES
Savings account £
Outstanding mortgage £
ISAs (Individual Savings Accounts) £
Outstanding loans £
PEPs (Personal Equity Plans) £
Other outstanding liabilities £
Investment bonds £
Total liabilities £ C
Stocks and shares £
Personal possessions £
Share of co-owned property £ YOUR INHERITANCE TAX (IHT) CALCULATION
Car value £ Current estate value A+B–C £ D
Pension benefits not under trust £ Less current IHT threshold – £ 300,000 E
Death in service benefits not under trust £ Amount liable for IHT D–E £ F
Other assets not listed above £
IHT payable F x 0.4 £ G
Total of main assets £ A
Beneficiaries would receive D–G £ H
PRUDENTIAL www.pru.co.uk 13

14. 5 HOW YOUR DOMICILE MAY AFFECT INHERITANCE TAX
UNDERSTANDING INHERITANCE TAX
Your domicile is generally decided at birth and will It matters because, if you are UK domiciled,
usually be the home country of your father. If your inheritance tax is payable on your worldwide assets.
father was born in the UK and has always or mostly lived If you are non-UK domiciled inheritance tax is only
there, you will be classed as UK domiciled. However, payable on your assets which are situated in the UK
if you are non-UK domiciled but have lived in the UK (subject to certain exceptions).
for 17 out of the last 20 years, you will be treated as
If you or your spouse or civil partner is non-UK
UK domiciled for inheritance tax purposes.
domiciled, please speak to a Financial Adviser about the
options available to you regarding inheritance tax.
14

15. 6 WHAT YOU CAN DO ABOUT
DECISIONS TO MAKE
YOUR INHERITANCE TAX LIABILITY
A DO NOTHING B SPEND YOUR MONEY C INHERITANCE TAX
PLANNING
The danger here is that, if you do By spending your money you
nothing, your estate may have an could have lots of fun but will Careful planning with a little
inheritance tax bill on your death. have little or nothing to leave for help from Prudential can help
This may mean that assets you your beneficiaries. It’s also difficult you ensure that your inheritance
wish to leave to beneficiaries end to budget for, as you can’t be sure tax bill is either reduced or
up being sold to pay inheritance exactly when you’re going to die. completely wiped out. Your estate
tax (or even to repay a loan taken Buying assets won’t solve the will then pass to your beneficiaries
out to pay the bill within the problem either, as your estate rather than to the tax man.
deadline). It also means that HM would still be worth the same. What’s more, tax planning need
Revenue & Customs could end up So some of the assets you not mean giving up access to all
as one of the biggest beneficiaries were hoping to leave to your of your money.
of your estate. beneficiaries may have to be sold
to pay your inheritance tax bill
instead (or the loan taken out
to pay the bill). Once again, the
Revenue could end up as one
of your biggest beneficiaries.
PRUDENTIAL www.pru.co.uk 15

16. 7 FIVE EASY STEPS TO INHERITANCE TAX PLANNING
DECISIONS TO MAKE
Benjamin Franklin was wrong about all taxes being
B1 MAKE A WILL
a certainty. There are five steps you could take to
help reduce your liability to inheritance tax. 2 CONSIDER EXEMPTIONS
3 CONSIDER GIFTS
4 CONSIDER LIFE ASSURANCE
5 CONSIDER TRUSTS
16

17. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
1 MAKE A WILL 2 CONSIDER EXEMPTIONS
The first step in inheritance tax planning is to make a There are a number of exemptions you can use to
will. Without a will, your estate will be shared out reduce the value of your estate. Taking advantage
under intestacy rules, which could mean that the of as many of them as you can is the most
things you leave don’t go to the people you would efficient way to reduce an inheritance tax bill.
have chosen. Also, more inheritance tax may be
These exemptions include:
payable than if you had made an efficient will.
All assets transferred between spouses or civil
The best way to make a will is to seek expert
partners (for more information please read Spouse
advice from a lawyer or will writing specialist.
and Civil Partner Exemption on page 19).
All you need do is decide to whom you wish to leave
Up to £3,000 given away each tax year, which is
items from your estate.
known as your annual exemption allowance.
A will can sometimes be altered once death has If you give away less than this one year, you can
occurred, but only with the agreement of all the add the balance to the next year’s allowance,
beneficiaries affected. This is a complex area and is but if you don’t use it then it will be lost. For
not a substitute for tax planning. Professional legal example, if you didn’t make any gifts last year,
advice would be necessary. your allowance this year would be £6,000.
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18. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
2 CONSIDER EXEMPTIONS continued
Gifts you make as part of normal expenditure Some of these exemptions can be combined.
out of income, such as regular payments for a For example, you could give £8,000 to your child
gifted life assurance policy. when they get married. £5,000 would be exempt
Gifts on marriage or civil partnership: as a gift to your child on their wedding and the
£5,000 to a child or to their spouse or civil additional £3,000 could be your annual exemption
partner, allowance for that tax year.
£2,500 to a grandchild or to their spouse
Certain reliefs may be available for business related
or civil partner, and
property.
£1,000 to anyone else.
Payments for the maintenance of your spouse These include:
or civil partner, ex-spouse or ex-civil partner, agricultural property relief
dependent relatives and, usually, your children business property relief.
if they are in full-time education or under 18.
For more information on these reliefs please speak
Gifts of up to £250 per person in any one
to your Financial Adviser.
tax year.
Gifts to charities and political parties
(including gifts made on death).
18

19. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
SPOUSE AND CIVIL PARTNER EXEMPTION What’s more, because this solution doesn’t
make best use of the inheritance tax threshold,
If your spouse or civil partner is UK domiciled, this
the eventual tax bill may be higher than it could
exemption ensures that any assets that go to
have been.
them when you die will be free of inheritance
tax. This exemption is very useful for most couples Making sure that you make effective use of the
who are married or in a civil partnership. It means inheritance tax threshold is an important part of
they can avoid inheritance tax on the first death by inheritance tax planning for married couples and
passing all their assets to their spouse or civil partner civil partners and a matter on which you should
through their will. consider taking further advice.
But when the surviving spouse or partner dies,
inheritance tax may then be payable on all the assets The example on the following page shows how
that he or she inherited on the first death. So by Henry’s family could have avoided having to pay
leaving everything to your spouse or civil partner, inheritance tax by taking account of inheritance
you may only be delaying payment of inheritance tax thresholds and planning accordingly.
tax, not avoiding it.
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20. DECISIONS TO MAKE
EXAMPLE: HENRY
This example is designed to represent a typical BUT inheritance tax on the other £200,000 will be
situation and does not relate to any particular at 40% = £80,000.
individual. You should not look upon this as
Based on these figures, when Jane dies, the
financial advice or a recommendation of a
inheritance tax bill on her assets totalling £500,000
particular course of action.
will be £80,000 – ie. 16% of everything that Jane
Henry died recently. His assets totalled £350,000. now owns. Her heirs, who are her children, will have
This was more than the IHT threshold at that time. to pay this before getting any of their inheritance.
Thanks to the spouse and civil partner exemption However, Henry and Jane could have obtained
there was no inheritance tax bill for his wife Jane advice on how to make use of the inheritance tax
to worry about when he died because Henry’s will threshold for each of them. For instance, if Henry’s
gave all his assets to Jane. will had given £200,000 to his children, this would
have been below the threshold, so there would have
The problem now is that Jane already had assets
been no inheritance tax to pay. Jane’s assets would
of her own totalling £150,000 when Henry died.
then have totalled £300,000 and this, too, would
Jane’s assets now total £ 500,000 have been below the threshold. So their children
Currently (in the tax year 2007/2008) inheritance tax would have avoided inheritance tax altogether.
is payable at 40% on everything over £300,000, so
there will be no inheritance tax on the first £300,000.
20

21. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
3 CONSIDER GIFTS
If you can afford to give away some of the These rules are:
assets you own, it may be possible to reduce Once you have gifted something away you
the size of your estate, which could reduce your cannot benefit from it. For example, you
potential inheritance tax bill. Any gifts you make that cannot gift your house to your children and
fall within one of the exemptions listed on pages continue to live in it rent free. If you do, there
17–18 will immediately be outside your estate and may be an annual income tax charge on the value
their value will not be subject to inheritance tax. of the benefit you enjoy or HMRC Capital Taxes
It is possible to make other gifts to reduce the value will charge inheritance tax on the value of the gift
of your estate. These gifts are known as potentially as though it had not been made.
exempt transfers (PETs). There are strict rules that You must survive for seven years from the
have to be followed when a potentially exempt date that you made the gift.
transfer is made. But if they are followed, then seven
years after the gift is made it won’t be considered The example on the following pages shows what
part of your estate for inheritance tax purposes. Wendy’s inheritance tax bill would be on making a
gift if she survives seven years, and also if she dies
within seven years.
PRUDENTIAL www.pru.co.uk 21

22. DECISIONS TO MAKE
EXAMPLE: WENDY
This example is designed to represent a typical IF WENDY SURVIVES SEVEN YEARS
situation and does not relate to any particular individual.
Wendy makes a gift of £306,000 to her son Sam
You should not look upon this as financial advice or
which he receives immediately.
a recommendation of a particular course of action.
You should consider your own circumstances fully. Once Wendy has survived seven years, all of the
£306,000 gift to Sam will be exempt from inheritance
Wendy is widowed and has total assets of £606,000.
tax (because there is no inheritance tax liability
This means that the inheritance tax bill if she dies after seven years).
will be £122,400 – because there will be no tax on There will be no inheritance tax bill for Sam.
£300,000 of her assets, but the other £306,000 will
be taxed at 40%. Wendy makes a new will giving all her other assets
to her daughter Daphne. That’s £300,000 for Daphne
Currently Wendy’s will divides her assets equally
when Wendy dies.
between her son Sam and her daughter Daphne. So
the inheritance tax bill will be divided between them Inheritance tax will only be assessed on Daphne’s
– £61,200 each. £300,000 inheritance from Wendy.
This will all be within Wendy’s inheritance tax
Based on the current value of her assets and current
threshold.
(2007/2008) inheritance tax rates, there will be no
There will be no inheritance tax bill for Daphne.
IHT if Wendy gives away £306,000 and survives for
seven years.
22

23. DECISIONS TO MAKE
IF WENDY DIES WITHIN SEVEN YEARS Under the inheritance tax rules, any gifts made in
the last seven years before Wendy’s death must be
Wendy needs to remember that her gift to Sam will
offset against the inheritance tax threshold before the
not become exempt from inheritance tax until she has
balance of her estate is taken into account. This means
survived seven years. If she dies within seven years
that the entire inheritance tax bill will fall on Daphne’s
there will still be an inheritance tax bill on Sam’s gift.
inheritance, as follows.
£6,000 (£3,000 for this tax year and £3,000 for the
The gift of £300,000 made to Sam will be offset
previous tax year) of the £306,000 gift to Sam will be
against Wendy’s inheritance tax threshold, meaning
exempt from inheritance tax, thanks to Wendy’s annual
that there will be no tax to pay on this.
exemption allowance for the tax year when she
The balance of Wendy’s estate, the £300,000 which
made the gift. Thus inheritance tax will be
is Daphne’s inheritance, will be taxed at 40%,
potentially chargeable on the rest of the
resulting in a tax bill of £120,000.
gift to Sam (£300,000) and all of Daphne’s
inheritance (£300,000).
This example is based throughout on
So the total sum assessed for inheritance
the current (2007/2008) inheritance tax
tax on Wendy’s death will be £600,000.
threshold and rates. In practice, these
may change in future.
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24. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
3
CONSIDER GIFTS continued
POTENTIALLY EXEMPT TRANSFERS So in Wendy’s example above, even if she dies six
AND TAPER RELIEF years after making the gift, the tax bill on her estate
will still be £120,000. This is because her gift to Sam
If a person dies between three and seven years
has used up the inheritance tax threshold first, leaving
after making a gift, there may be some taper relief
her estate, which is not eligible for taper relief.
on the amount of tax to be paid. The table below
shows how the percentage of tax payable decreases: One way to cover the inheritance tax bill on a gift
is to take out a seven-year decreasing life
After 3 to 4 years 80% of tax payable
assurance plan, written under an appropriate trust,
After 4 to 5 years 60% of tax payable to pay the inheritance tax liability if you should die
After 5 to 6 years 40% of tax payable within seven years of making the gift.
After 6 to 7 years 20% of tax payable
CAPITAL GAINS TAX
However, it is important to remember that this relief
Making a gift of certain assets that have grown in
is on the amount of tax payable. If the value of
value since you acquired them may mean that you
the gift falls within the inheritance tax threshold
have to pay capital gains tax on them, as if you had
when the estate value is calculated, there will be
sold them.
no benefit from taper relief.
24

25. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
4 CONSIDER LIFE ASSURANCE
Remember that the person you have given the asset A life assurance plan, placed under trust, will not
to may have to pay capital gains tax on any future lessen the inheritance tax bill but can be used to
growth in value when they come to dispose of it. pay the bill on death. Provided the plan is placed
under a suitable trust, it will not form part
INCOME TAX of your estate and the money is available
You risk a potential income tax bill if you benefit from immediately on death. The plan must be set up
assets you have given away. This can occur if you carefully because, if you make a mistake, you could
give away assets or buy them for someone else, but actually make the inheritance tax bill even bigger
continue to use them free of charge or at a low cost. than it would have been without the plan. You
Remember to take tax advice if you are considering should seek advice from a Financial Adviser.
making a transfer of this type.
Please also remember that any income from the asset
you have gifted to someone will be subject to income
tax and their income tax rate may be higher than yours.
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26. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
5 CONSIDER TRUSTS
A trust is a legal arrangement where you choose a Prudential offers a range of inheritance tax trusts,
third party (called a Trustee) to hold some of your designed to help lower or prevent a bill on your death.
assets for someone else (called a beneficiary). If
These include:
structured carefully, trusts can help to reduce
a loan trust, which allows you free access to
or even eliminate your inheritance tax liability.
your capital, while investment growth goes to
Some trusts involve making a gift, which will reduce your beneficiaries after your death
the value of your estate. Like any other gift not a gift trust, which lets you make outright gifts
covered by one of the exemptions mentioned, the to your beneficiaries
assets placed into certain trusts are considered to be a discounted gift trust, which allows you to
a potentially exempt transfer. If you survive for seven have regular payments from the trust while the
years there will be no inheritance tax to pay on the balance goes to your beneficiaries after your
value of the gift. With other trusts there may be death, and
some tax to pay, but you can keep control of the an excluded property trust, which can protect
asset that you want to gift. offshore investments for non-UK domiciled people.
26

27. 7
DECISIONS TO MAKE
FIVE EASY STEPS TO INHERITANCE TAX PLANNING continued
FINANCE ACT 2006 There may also be a periodic charge, every 10 years,
of up to 6% and an exit charge, also of up to 6%,
The Finance Act 2006 introduced new rules for the
when money is distributed from the trust to
taxation of trusts. These affect most types of flexible,
beneficiaries.
or discretionary, trusts, while the rules for absolute,
or bare, trusts remain the same. With an absolute trust, there will be no inheritance
tax as long as you survive for at least seven years
The main difference between the two types of trust is
after setting up the trust. Trusts are
that with an absolute trust you cannot change the
complicated and must be set up
beneficiaries or their share of the trust fund, once the
very carefully. You should speak
trust has been set up. With a discretionary trust,
to a Financial Adviser who will
you can make changes if you wish. However, you pay
advise you on what trust, if any,
for that flexibility with potential inheritance tax charges.
would be best for your needs.
If the amount put into the trust is more than the nil rate
band (or you have made previous chargeable transfers
that, together with the money put into the trust, take
you over the nil rate band), there may be an immediate
charge of 20% when the trust is set up.
PRUDENTIAL www.pru.co.uk 27

28. 8 HOW TO GET GOING
DECISIONS TO MAKE
– A CHECKLIST
1 SPEAK TO SOMEONE ABOUT WRITING
Now you know a little about how to minimise
your potential inheritance tax liability, and A WILL
we hope you feel prompted to reduce it. It is
vital that you think about this now to ensure 2 SPEAK TO A TAX SPECIALIST TO FIND
that your good intentions are not wasted. A WAY TO AVOID INHERITANCE TAX
Once you have your plans in place, we would also
encourage you to review your position with your
Financial Adviser from time to time. If there is a change
in your financial position or you change your will you
should review your inheritance tax liability to ensure
that your plans remain right for you.
28

29. 9 WHAT TO DO NOW
TAKING ACTION
SPEAK TO AN EXPERT
For help and advice on inheritance tax, Prudential Some Prudential products are only available through
recommends you consult with a Financial Adviser. Financial Advisers as we believe they require
specialist advice.
A Financial Adviser will assess your individual needs
and circumstances before recommending relevant
products (not necessarily from Prudential).
For information on Prudential products and services you can:
visit us 24 hours a day at www.pru.co.uk
Existing Prudential customers can:
email us via PruMail – our secure email system – if you wish to contact us about
an existing policy. Log on to Pru.co.uk for more information.
29

30. TECHNICAL TERMS EXPLAINED
AND FINALLY
Beneficiary Domicile
A person who benefits from a will or a trust. In general terms, a domicile is the country which a
person regards as their permanent home.
Capital gains tax (CGT)
You may have to pay capital gains tax on any profits Estate
over a set allowance when you sell assets such as shares Everything you own. Your estate includes assets held in
or property. You are allowed to make gains up to a your sole name, your share of jointly owned assets and
certain amount each tax year which are exempt from the value of an alternatively secured pension fund (ASP).
tax (£9,200 for the tax year 2007/2008). Everyone has
their own individual allowance so it may be possible for Exemptions
couples to make a combined gain before they have to Types of gift that are exempt from inheritance tax.
pay tax – although each individual’s circumstances are
Inheritance tax
considered separately.
A tax on certain assets that belong to you when you die.
Some gains you make are exempt from capital gains tax.
These include gains from the sale of your car, Personal
Equity Plans and Individual Savings Accounts. Also, you
do not have to pay capital gains tax when you sell your
home provided certain conditions are met.
30

31. AND FINALLY
TECHNICAL TERMS EXPLAINED continued
Inheritance tax threshold Taper relief
The amount up to which no inheritance tax is charged When the total value of all gifts made between three
on your estate, sometimes called the nil rate band. and seven years before a death is more than the
inheritance tax threshold at death, taper relief is due.
Intestacy The relief increases the longer the time between the
Dying without leaving a will. gift and death. It reduces the amount of tax payable,
not the value of the gift itself.
Life assurance
A type of insurance policy that pays out when the Trusts
insured person dies. A vehicle for holding funds or property for the benefit of
others. It may reduce or avoid inheritance tax on death.
Potentially exempt transfers (PETs)
A PET is a gift which will become exempt from
inheritance tax if the donor lives for seven years after
the date of the gift.
PRUDENTIAL www.pru.co.uk 31

32. www.pru.co.uk
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