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Expat Investor : December 2007
December 2007 EXPAT INVESTOR 15 ESTATE MANAGEMENT Fast Facts 10180 will add basic rate tax relief to the amount that you contribute. There are limits to the amount that can be invested -- the current limit is £3,600 gross a year, which means a monthly contribution limit of £234 (£2,808) allowing for tax relief. 4. Holding funds in trust -- Grandparents could consider holding funds in bare trust for their grandchildren. This means you retain control over the investment, but pay tax on income earned from it at the child's rate rather than yours. If this is done, you have total control over when the child gets hold of the money up until the age of 18. And in most cases money you put in trust no longer counts as your estate for inheritance tax purposes. Professional advice should be sought as to the most appropriate trust for your purposes 5. Small gifts -- In any tax year, an individual may gift up to £250 to any number of donees free of tax. Each grandparent, for example, could give each of their eight grandchildren £250 annually over a 20-year period. This would dilute their combined estates by £80,000 and secure an inheritance tax saving of £32,000 on current rates. 6. Gifting your annual exemption -- In any tax year, an individual can gift up to the annual exemption of £3,000 to individuals or trusts of their choice. Many people find it difficult to save the capital required to build up a substantial nest egg. However, there are some useful tax incentives that can be used to give children and grandchildren a helping hand. At Vantis, we urge people to review their finances and investigate tax-efficient methods of passing capital on to the next generation. Here are 10 tactics to assist your planning. 1. Personal allowances -- Children have their own personal allowance, which is currently £5,035. Capital gains are tax free for everyone including children if they do not exceed £8,800. Grandparents should consider building a nest egg for grandchildren by starting a regular savings plan on their behalf. However, income on gifts by parents doing something similar remains taxable on the parents. 2. Child trust fund -- Parents can contribute towards the permitted £1,200 a year investment to a child trust fund account for a child born after 31 August 2002 for whom child benefit is payable. No withdrawals are allowed until the child is 18. 3. Stakeholder pensions -- For the long term, consider starting a stakeholder pension for your child or grandchild. The child cannot access the funds until retirement, but this will provide a good base for their retirement fund. The government Any unused exemption from the previous tax year can be carried forward to the current tax year but no further. Over a 20-year period, both husband and wife could gift up to £126,000 out of their combined estates tax-free, and achieve a combined potential inheritance tax saving of £50,400. 7. Regular gifts out of income -- Those with income in excess of their needs should consider this option. Making regular cash gifts to someone can provide a significant IHT exemption, yet it is possibly the most under-used device by high income earning individuals. The donor must be able to show that the gifts are habitual, are made from post-tax income, and leave the donor with sufficient income following the gift to maintain their usual standard of living. The recipient should always seek advice on how to utilise the funds. 8. PETS make a great gift -- Give someone a PET, and both the donee and your estate could benefit: gifts to individuals qualify as Potentially Exempt Transfers (PETs). As long as the donor survives the gift by seven years, the value of the gift falls outside the donor's estate for IHT purposes, provided the donor does not retain either a direct or indirect benefit in the assets being gifted. There is no limit on the amount of the gift, allowing individuals to provide a substantial sum for a deposit on a house, for example. Surviving the gift by at least three years should see a measure of inheritance tax saving due to the tapering provisions. 9. Say 'I do' to the wedding gift -- Subject to certain conditions, each parent can gift £5,000 to their child on the occasion of their marriage (known as 'gifts in consideration of marriage'). Grandparents or more distant relatives can gift £2,500 and any other person £1,000 free of tax. 10. Passing Wealth To Your Spouse -- Married couples and civil partners can take advantage of the exemption for transfers between spouses, whether made during their lifetime or on death. It is not uncommon for one spouse to hold all -- or a majority -- of the wealth in their name and couples in this situation should ensure that assets to the value of the IHT nil rate limit are transferred to ensure that the amount of IHT payable on the death of the surviving spouse is minimised. Similarly, IHT inefficient Wills could exacerbate the liability on the death of the surviving spouse by £114,000 at current rates, and couples should have these health checked as a matter of course. With a global personal customer base, we believe delivery of a comprehensive banking service is vital for our customers' everyday financial needs. We recognise the diversity of customer banking requirements. Being internationally located or mobile, you don't always have the luxury of popping into your local branch to manage your finances. Nearly 15 million people in the UK now use the internet to access their bank accounts. The scale of internet fraud has risen in recent years with 'card-not-present' internet fraud jumping from £45 million in 2003 to £154.5 million last year, making online security a major concern for customers who want to manage their finances online. At NatWest International Personal Banking, we take a multi-channel approach in the delivery of our services to our customers. 24/7 telephony plays a big part, but now 24/7 online multi-currency banking is equally as important. NatWest ibanking, our advanced multi-currency internet banking service, was launched in 2006, providing personal customers access to all their transactional, savings and money market accounts. Additionally, advanced authentication technology using a handheld Chip and Pin card reader provides spot forex capability and secure sterling and international payments availability with NatWest ibanking Plus. Whilst there is a small up-front cost with NatWest ibanking Plus, you can make both international and express sterling payments at a significant discount to the standard charge for these payment types. For example, if you were to make one international payment (sterling or currency) and one express sterling payment a month with NatWest ibanking Plus, you could save up to £167 per year by benefiting from a significantly reduced payment fee. As well as having the reassurance of the security measures we have put in place to ensure the confidentiality of your details, you'll also have the confidence of dealing with a bank you can trust. So as an ibanking customer you can be assured of our commitment to innovation and continued improvement. In 2007, we are already planning further enhancements to make our customers' online experience even more rewarding. ibanking is a secure, accessible and easy-to-use internet banking package and is part of the extensive International Personal Banking service from NatWest. For more information on NatWest ibanking or the other comprehensive banking services of NatWest International Pe r sonal Banking, please visit www.NatWestinternational.co m or telephone 00 44 (0)1534 761620. Building a nest egg for your nearest and dearest Alan Ford, Partner with Vantis, the accountancy, tax and business advisers, reveals 10 ways you can maximise the amount passed on to your loved ones. Money Tool from NatWest International
January February 2008