September 2007

TOM HUNTER APPROACH COULD BE KEY TO AVOIDING INHERITANCE TAX

These days you don't have to be Scotland's richest man to feel the taxman breathing down your neck. With low interest rates pushing up asset class values to unprecedented levels more of us than ever before are having to put measures in place to reduce inheritance tax (IHT) liability.

But there are plenty of lessons to be learned from Sir Tom Hunter, Scotland's self- made billionaire. The tycoon has amassed a huge personal fortune and is planning to give £1 billion to charity over the coming years. Assuming this sum would otherwise be eligible for inheritance tax, Sir Tom will prevent up to £400 million going to the taxman. And while people up and down the country are losing sleepless nights and stress-filled days worrying about how they can avoid giving their hard earned cash to the Inland Revenue - the answer couldn't be simpler - they could give it away.

Each year the philanthropist donates millions of pounds to good causes around the world both from his personal fortune and through The Hunter Foundation. It's an effective way to bring estate values down toward or even below the £300,000 IHT threshold while also getting the benefit of knowing you've played your part in helping others less fortunate then yourself. And while helping others is Sir Tom's key motivation, it's certainly an added bonus to reduce tax liabilities along the way.

There are many steps that can be taken to reduce the amount of IHT that is ultimately claimed. Many parents decide they want to share their wealth with their children and derive real satisfaction in the knowledge that they have played a part in securing their children's future. Some gifts are exempt, an example being a gift of £5,000 on the marriage of a child. Married people often tend to leave their entire estate to their surviving spouse, which can be an opportunity missed, as in many cases a better tax result would flow from allocating part of the estate to the children. Good planning is essential and "estate protection plans" should be reviewed every three to four years to ensure they are as effective as possible.

But for those people who don't have a spouse or child to share their financial successes or those parents who don't feel their children are yet responsible enough to handle such large sums of money, it can be a frustrating thought that the tax man could be their substitute next of kin. For people searching for an alternative to this rather depressing outlook, giving financial support to a charity or even a political party could be a rewarding option. There is no limit on the amount of money that can be gifted to a charity or a political part so with some careful planning, the amount liable for tax could be kept to a minimum.

But, while the thought of keeping the tax man arms length can be a satisfying thought, it's worth remembering that inheritance tax can come back to haunt you. If a donor dies within seven years of making a transfer it can be brought back into account and be liable for tax. For gifts made between three and seven years before death, a tax relief can be applied which reduces the IHT liability.

Despite these avoidance tactics, one thing remains certain - the taxman never loses out. So, while it's vital that strategies are put in place to make the most of your assets, it's even more important to focus on what is really important - living a full and healthy life with family and friends.

Sandy Robertson is the Managing Director of Acumen Group. The company will be holding a seminar on inheritance tax in conjunction with Standard Life and Aberdeen Grampian Chamber of Commerce on 22nd August at Marcliffe at Pitfodels. For further information contact kay.newton@acumen.info.