How Has the Credit Crunch Affected My Estate?

The credit crunch has a massive impact on people; their savings, their pensions and their jobs are all at risk - a fact to which many of those in the Jobcentre queues can attest. Mass redundancies and the prospect of many corporate and personal insolvencies have meant that this crisis has had distinctly personal repercussions for many people. However, amidst the gloom there are a few silver linings. While many are making paper losses on their property, this can be translated into a significant tax saving. Indeed, the credit crunch is likely to have taken many people out of the clutches of Inheritance Tax altogether.

Inheritance Tax Liabilities

Many people's estates are at their lowest values for many years. An extended period of steadily rising share and property prices have meant that, while many people have been able to use their property as a 'cash point' to release equity, others have had to deal with huge inheritance tax bills when they inherit. In many places, though, property prices have plummeted by as much as 20%. While this has posed problems for those struggling with negative equity and hoping to sell their homes, it has proved a rare boon for those trying to minimise their inheritance tax liabilities.

On the most basic level, falling property prices will have brought many households below the Inheritance Tax nil-rate band, currently set at £325,000. However, many others still find themselves above the threshold and therefore wanting to take measures to minimise their liability. The effects of the credit crunch have actually made this easier.

Every individual can gift away assets up to the value of £3,000 every year without incurring an IHT bill. Clearly, as asset values have fallen, the £3,000 figure has become more generous. This is particularly important as prices will rise again - but, if you give assets away now, they will be out of your estate by the time their value increases. The same goes for investments; if you have been keeping money aside for a child or grandchild, for example in an ISA, you could transfer this into their name or the name of their parent or guardian, without raising an IHT liability. What happens to the value of the investment after that point will have no impact on your IHT bill.

Capital Gains Tax liabilities

The credit crunch will also have had an impact on any Capital Gains Tax liability arising when you dispose of assets. Capital Gains Tax (CGT) arises when there is a positive difference between the amount you paid for an asset and its value when you dispose of it. Capital Gains Tax liabilities arise even if you are giving an asset away. However, falling asset prices have meant that gifting is far more tax efficient, as much more can be gifted each year while still falling below the annual Capital Gains Tax threshold of £10,100. For all its downsides, the credit crunch does present a valuable opportunity for those interested in tax planning. As asset prices have fallen, the benefits for those trying to separate themselves from elements of their estates have increased. With some careful planning and a little forethought, you can make the credit crunch work to your advantage.