Part 1 of 3

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Fiona Julian: On the line I hope I have Gordon Tate, Gordon are you there?

Gordon Tate: I am.

Fiona Julian: You can hear me; gosh it’s worked, isn’t it good when things work. Thank you very much Gordon for joining the HOPE FM listeners this morning to give them some top tips.

Gordon Tate: That’s my pleasure.

Fiona Julian: You, Gordon, have got great expertise in things like inheritance tax.

Gordon Tate: Correct.

Fiona Julian: Gordon could you, for the listeners explain to us, what inheritance tax is?

Gordon Tate: Well basically it is a tax on your wealth, accumulated throughout the whole of your life, on death. So basically, it used to be called death duties, but then somebody a few years ago decided to change it to inheritance tax, but in essence, you build wealth all your life, when you die, the tax man wants his cut.

Fiona Julian: I think the big sort of issue with this is, that you actually, probably already paid tax on this, so you are being taxed on something you’ve already been taxed on.

Gordon Tate: Oh yes, you’ve paid income tax, you’ve possibly paid capital gains tax, you have paid tax on your savings all you life, and they want  more tax when you’re dead.

Fiona Julian: It doesn’t seem right, and what you’ve just mentioned capital gains tax, could you give me in a nutshell, what capital gains tax is, because it is something I often scratch my head over?

Gordon Tate: Well, in essence it is a tax on any gain you make, so for instance, your normal home, your domestic residence would be free of capital gains tax, as an exemption, but if you bought a second property to rent out, then that is an asset, it would increase in value, the same with a holiday home; when you sell them, the government wants a cut from the proceeds of the profit, which is everything, they take the sale price, then they will deduct anything that you paid to buy it, in other words, if you’ve got a mortgage etc, they will deduct any costs involved in buying and selling such as solicitors’ fees, and what is left, they will then allow a certain allowance against this, and then they will take the capital gains tax.  Capital gains tax is based on your normal tax rate, so if you are a basic rate tax payer, they will tax it at basic rate, if you are a higher rate, they will take 40% of your profit.

Fiona Julian: Forty per cent? ouch, ouch.  And with inheritance tax, now is this something that there are lots of specialists in, can we just go off down to our high street and find someone who might know about inheritance tax?

Gordon Tate: Probably not, financial advisers, like accountants and solicitors tend to specialise and, for instance if you found a mortgage broker, he would arrange mortgages, but the chances are he would know very little about inheritance tax. Similarly, if you had a pension specialist, he would probably understand about pensions, but he may not know everything there is to know about inheritance tax.

Fiona Julian: So the key here is, go to the specialist.

Gordon Tate: Yes.

Fiona Julian: Go to the specialist and Gordon we will give out your details later. We are talking to Gordon Tate, for anybody who has just tuned in, and Gordon Tate you have actually got a website by that name.

Gordon Tate: Absolutely

Fiona Julian: And Gordon specialises in inheritance tax, among other things.

Gordon Tate: Among other things.

Fiona Julian: Among other things, well we will talk about inheritance tax for the moment, and we will see if we have time for any of the other things later on, but if those people who are listening then they can go on to your website and have little look anyway.

So, Gordon could you give us some top tips to help beneficiaries to avoid paying too much inheritance tax.

Gordon Tate: The first one is to go and see a suitably qualified solicitor and get your wills re-visited. Tax law is changed periodically, whenever the Chancellor decides he has found a loophole that needs plugging up and therefore, people get their wills arranged, not realising that say, two to three years later the planning that they did back when the will was arranged maybe two, three, four, five years before, is suddenly not adequate any more because the tax laws have changed. So, every two to three years, they should always visit a suitably qualified solicitor who is experienced in estate planning and have their wills re-visited, which means; make sure that the planning they have put in place is still adequate in relation to tax laws.

Fiona Julian: Great, so you really do have to keep this up to date, it is not something that you can, you write your will and put it away in draw and then forget about it?

Gordon Tate: No, unfortunately not, what tends to happen is, a clever lawyer will come up with a tax wheeze that will avoid, or help to avoid paying inheritance tax, the Inland Revenue find out about it, object to it, and the next thing the Chancellor will make an announcement in his Budget that closes the loophole, therefore, the wills have to be re-scheduled again because somebody else will then find another clever way to avoid paying it.

Fiona Julian: So it’s a bit of a game really?

Gordon Tate: Yes it is.

Fiona Julian: It’s the government versus the people.

Gordon Tate: Correct.

Fiona Julian: A game of chess, who’s going to make the next move?

Gordon Tate: Yes, these days though, when new ideas and plans are introduced they have to be pre-approved by HMRC “ Her Majesty’s Revenue and Customs”, before they can be utilised as part of a tax planning exercise. In the old days, they would go to Council, get Councils’ opinion, Council would say; in my opinion, this should work, then they would wait for the Inland Revenue to challenge it, and then they would find out, when it got to court, if it worked or not, these days, HMRC approve it beforehand. That ways, if it’s not going to work, then chances are, it won’t be used.

Fiona Julian: Right, so inheritance tax now, is there is a level of money that you can have before you pay inheritance tax, I think, you will have to correct me and inform me now Gordon.

Gordon Tate: Well, when you die, your whole estate is liable for inheritance tax, but there are two rates;  the first rate from nought to what we call the Nil Rate Band; which is currently £300,000, is nil, and that’s why it is called the Nil Rate Band because it is taxed at a nil rate, but it is still taxable. Everything over the Nil Rate Band is taxed at forty per cent.

Fiona Julian: Gosh, that’s a lot isn’t it?

Gordon Tate: It is, I mean you consider somebody with a million pound estate, and in the south of England, that is not a great deal, there are quite a few people about that are going to be paying close on £300,000 in tax.

Fiona Julian: Gosh, that’s a lot of money to, and I’m just thinking, you know we are in the Bournemouth area, a lot of properties now, houses would be £300,000.

Gordon Tate: At least.

Fiona Julian: You know, the starting price, goodness, goodness.

Gordon Tate: Yeah, I mean, if you go down to Sand Banks, I mean that’s probably not even the garage.

Fiona Julian: Or may be a beach hut!

Gordon Tate: Correct. There are ways to mitigate this though, go to your solicitor and have your wills scheduled, so for instance if you are a couple, you can do what we call a Nil Rate Band Discretionary Will Trust, which, in effect, means that both parties can effectively leave the Nil Rate Band this year £300,000 without paying tax, to their beneficiaries, which could be their children, their favourite charity etc. However, they would have to be done correctly, because again, the Chancellor changed the Tax Rules this year, and there is a famous case that has just hit all the headlines called the “Fizacelli Case”, which proves the point, that if the estate, if the will planning isn’t done correctly by somebody who know what they are doing, then it can all go horribly wrong.

Fiona Julian: Right, yes because you can buy over-the-counter wills, can’t you?

Gordon Tate: Oh yes, you can go to Smiths and buy a will over the counter, but if you don’t know what you are doing, you are wasting your time.

Fiona Julian: It is a minefield, so you have got to stay ahead of the game.

Gordon Tate: Certainly.

Fiona Julian: Gordon, are you alright to stick around for a bit, for us to talk more. Perhaps we could talk about people who can think of wheezes themselves, who could get themselves into trouble, and I am just thinking off the top of my head, of people who give things away before they die, to avoid inheritance tax, so maybe we could come back and talk about that.

Gordon Tate: A very good one and I’d love to.