Tuesday, October 09, 2007

Inheritance Tax dodge

Darling's inheritance tax cut isn't much of a cut. By making it £600,000 for a couple instead of £300,000 each, all he has done is to hugely simplify financial arrangements for people.

Before today, your will could place all of your assets in a trust, with your spouse getting a life interest in those assets. When your widow died, the trust would end, passing on your assets to your children. In effect, this meant that the couple got two inheritance tax allowances, as long as they wrote their wills correctly.

Now, conventional "mirror wills" will have the same effect as the fancy trust wills. The losers here are the tax-avoidance lawyers who charged £1,000 a time for setting up a pair of fancy wills; you can now use a normal lawyer and pay only a hundred or two, or even draw up mirror wills yourself if you have fairly straighforward beneficiaries (eg split it equally between your children).

The winners are (the beneficiaries of) people who didn't expect to need fancy tax-avoiding wills, and therefore had straightforward ones (or no will at all), because they will get the double allowance of a couple without having to jump through hoops to get it.

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