It was Benjamin Franklin who famously said that there are two certainties in life, death and taxes.

Recently the taxes that arise on death have, for certain people, reduced.

The rate of tax.

From 5th April 2009, the first £325,000 of a person's estate passes free of tax and the balance thereafter is taxed at 40%.

So, for example, a person who is worth £425,000 is going to face a liability to tax of £40,000 (40% on £100,000).

Exemptions and reliefs.

Inevitably, taxation is not going to be as simple as that as there are certain exemptions and reliefs available.

For example:-

Surviving spouse exemption - Bob dies leaving £6m to his Helen, his wife. Provided certain conditions are met, there is no tax to pay. This applies to people in Civil Partnerships too.

Charity relief - Helen dies, giving all her £6m estate to Cancer Research UK. No tax to pay.

There are other reliefs, including a relief to taxation if you give assets to certain political parties. Whoever thought of that law?

What is an 'estate'?

So far we have talked about Bob and Helen's estate worth £6m but what is an estate?

Generally it includes all their assets minues their liabilities.

Any charge to tax arises on the net value of an estate so, for example Bob does worth £6m but has a £1m mortgage, then the net value of his estate is £5,000.

Monies at bank, cars, businesses, certain life assurance, pension benefits, stocks, shares, jewellery, houses and, yes, even foreign assets come into the mix.

Giving it all away.

So the obvious way of Helen avoiding tax on her £6m estate is to give it to their only son, Bob Junior. Therefore, when she dies, she is worth nothing and so no tax to pay.

Well yes, that works, in a fashion. The rules say that Helen has to live for 7 clear years after the gift. The rules also say that Bob Junior cannot lend it back to her or that she cannot benefit from it in any way. So what Helen lives on in those 7 years is questionable.

Gift with Reservation of Benefit (GWRoB).

So what if Helen gave it all to Bob Junior and he used £1m of it to buy her a flat somewhere nice. In that event Helen will have be treated as if she reserved a benefit in the £1m and she will be taxed as if she was worth £1m.

The GWRoB rule is catching people out who years past have transferred the title deeds of their house to their children but carried on living there.

Is planning possible?

Yes planning is possible and please click here to our section on the latest planning ideas.