Death Duties not exclusive to Downton Abbey

Posted on: October 8th, 2013

If, like me, you were anxiously waiting for the return of the series Downton Abbey if only to see how Lady Mary would cope with the demise of her beloved husband Matthew so soon after the birth of George, you may have been disappointed to note that Lady Mary appears to be more concerned with how to finance the death duties that have arisen as a result of Matthew’s death than she appears to be over the fact that her husband has died.

Clearly Downton and its surrounding land is worth a small fortune and I am quite sure the Death Duties due will be staggering, but many ordinary estates in the UK at the current time are caught by inheritance tax and it might be worth considering lifetime tax planning if it seems that your assets (when combined with those of any spouse or civil partner) are likely to exceed £650,000.

Death duties were introduced in 1894 and have been around in one form or another ever since. Currently termed ‘inheritance tax’ the revenue provides 0.8% of the government’s annual income.

It used to be the case that if an individual did not use their tax free allowance on their death (because they passed all their assets to their spouse – an exempt gift for inheritance tax purposes) the allowance was lost and so a situation was created whereby the surviving spouse had the total family wealth in their sole name but only their own allowance to offset against it on their eventual death.

The rules changed for deaths of the surviving spouse occurring on or after 9 October 2007, so that the allowance of the first to die can now be added to the allowance of the survivor on their eventual death. Today therefore, providing the first to die leaves everything to the survivor, either outright or in lifetime trust, there is an allowance of £650,000 to offset against the total assets on the death of the survivor. The value over and above £650,000 is then taxed at 40%.

For unmarried individuals (including couples living together but not married or registered civil partners) the total available tax free allowance is limited to £325,000.

Of course there are measures that can be taken during your lifetime to mitigate a liability to inheritance tax but for these to work it is essential that the person giving away funds can afford to be without those funds as once they are gone. Just like Lord Grantham’s poker losses, there is no getting them back!