Inheritance tax (IHT) is something that is unavoidable for most people. And for property owners, the position is likely to be worse than many others, largely because they are likely to have significant assets that cannot easily and quickly be realised, in the event of death, in order to meet IHT charges. These cut in at 40p in every pound, once the threshold has been reached. For 2009-10, the threshold is £325,000.

For married couples (and civil partners) there is no IHT on gifts between them, so it is possible to pass the entire estate without any liability to the tax. Similarly, a recent change in the law means that the value of any money under the threshold not passed outside the relationship on the death of the first ‘partner’ can be passed to the survivor and added to their threshold on death. The calculation is slightly complicated, because it is the proportion of the threshold retained within the relationship that passes over, not the amount.

Are there any reliefs available? Some forms of property obtain 50% (or even 100%) relief against IHT. Buildings owned by a partner or controlling shareholder and used wholly or mainly in the business of the partnership or company immediately before the transfer falls within the 50% category. However, it is most unlikely that HM Revenue and Customs would consider property owned for letting, even if owned by a partnership or company, would qualify. After all, the income generated is not accepted as from a trade profession or employment, for the purposes of justifying pension contributions and the same considerations would apply for IHT.

It is important to understand there are some exemptions against IHT; these are gifts of any size made at least seven years before the death of the donor (called Potentially Exempt Transfers, or PETs) and modest gifts made out or normal income expenditure plus up to £3,000 a year for each donor. Other small gifts and modest amounts paid in consideration of marriage are also exempt.

For most property owners, the exemptions are unlikely to be of much assistance if assets are largely held in property, as this cannot easily be converted into small amounts for early distribution. Giving away properties while retaining the income from them will also prove ineffective from an IHT planning.

Another issue that will affect many property owners is that IHT is generally payable within six months of death. This can often be difficult, given how long it can take to obtain probate, and could involve a ‘forced sale’ in order to raise the required sum – which could be very large from some property landlords. It is normally possible to pay by annual instalments, but in this case interest is charged by HM Revenue & Customs (as in the case of late payment). Having liquid assets, in addition to the property portfolio, can make life a lot easier.

It is important to seek independent professional advice before making any decision about your personal finances, especially which landlords insurance you decide on. You should always ask your insurance advisers what experience they have of dealing in this area.

Adam Singleton writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.

Article Source:http://www.articlesbase.com/real-estate-articles/inheritance-tax-for-property-owners-1277929.html