Advanced taxation Case Study Example | Topics and Well Written Essays - 2500 words

Advanced evaluateation - Case Study ExampleLord Bolsover is rather wrong in his thinking that in the event of his final stage,all his belongings will be divided as between his wife and son.He is also wrong in assuming that the income and assets of the married coupe are added to compacther for revenue purposes. The fact that he has not made any will so far will shamble his successors liable for hereditary pattern tax in the event of his death.Present taxation system charges Inheritance Tax on any estate worth over 300,000 (for Tax year 2007 -2008). The apprize of estate is arrived at by adding up the value of every thing one owns including the share in jointly owned properties. The sum of large lay outs made during the last 7 years forwards death will also be field of operationed to inheritance tax.Up to the value of 300,000 the estate is covered under nil rate band and no IH tax is payable. Any value over the nil rate band becomes taxable at a rate of 40 percent. Inherit ance tax is to be paid out before the money and belongings of the deceased can be distributed according to his/her will.Based on the above premise unless some tax planning is not done immediately, Lord Bolsovers estate would be subjected to inheritance tax. The following are some of the ways in which the incidence of Lord Bolsovers estate to inheritance tax could be mitigated.The nil rate band is an effective saving in the value of the estate which would otherwise be subjected to inheritance tax.... Annual Exemption of 3000 which can be carried forward for one tax year, Marriage gifts privilege of 5000 to each of the children, 2500 to each of the grand children and 1000 to anyone (these gifts are exempted subject to the condition that the gift is made before the wedding day) and exemption of small gifts made to anyone up to a value of 250 during the tax year.All these gift exemptions have the effect of reducing the value of the estate that may be subjected to inheritance tax.1.2 Ma king require GiftsThis is another way of mitigating the incidence of the inheritance tax on the estate of Lord Bolsover. only for exploitation this method of tax avoidance there are two hitches which Lord Bolsover has to considerHe should break down at least for 7 years to make the gifts exempt from taxHe cannot have entrance fee to the monies gifted by him on his own accord.The important point to note here is that any gift made directly or into an absolute trust over and above the exempt gift perimeter will be deemed as Potentially Exempt Transfers (PET) for a period of 7 years and until this period of 7 years the person making the gifts should remain alive to make the gifts eligible for exemption from inheritance tax. However the law allows the charging of the inheritance tax pro-rata depending on the year of death after the gifts or transfers are made, subject to the nil rate band of 300,000. This method of taxing pro-rata is known as Taper Relief which reduces the tax inci dence by 20 percent every year after an initial period of 3 years. That means the reduction of tax rate will start from the fourth year before death onwards.But there are several other considerations like the time at which Lord Bolsover wants the beneficiaries to get the gifts, change in the circumstances of the