Beat the taxman - Planning Ahead

Here are a few things you should think about:

• Inheritance tax
• Making a will
• Enduring Power of Attorney (EPA)
• Long-term care
• Funerals

Could inheritance tax affect you?

• Rising house prices mean that more and more people are finding they are affected - people who didn't think they were 'rich'
• Everything you own is taken into account: not just your house, but all your house contents - furniture, jewellery and so on, your car and your investments
• Inheritance tax will be charged if it adds up to more than £300,000 (tax year 2007/2008)

Ask yourself:

1. How much is your house worth?
2. How much are your house contents insured for?
3. What savings and investments do you have?

You could be surprised at the answer.

How much is inheritance tax?

• Inheritance tax is always charged at 40% - there is no lower rate
• The tax has to be paid before your heirs get their inheritance

What can I do about it?

There are a number of steps you can take:

• Make a will
• Use your exemptions
• Give assets away,
• Take out life assurance, or
• Set up a trust

Special rules apply to each of these. If you think you may have a problem, you should consult a financial adviser or tax specialist.

This is based on my understanding of current taxation, legislation and HM Revenue and Customs practice as at March 2007, all of which are liable to change without notice.

The impact of taxation (and any tax relief's) depends on individual circumstances.

Making a will

Having a will is important at any age. If you die without one (intestate), the State will divide up your estate. Which could mean your spouse having to sell the home you share. And if you're not married to your partner, they may not get anything.

• You can do it yourself - many stationery shops sell kits
• Alternatively, play it safe and use a solicitor

Enduring Power of Attorney (EPA)

In October 2007 the Enduring Power of Attorney will become the Lasting Power of Attorney.

Everybody who makes a Will should also make an Enduring Power of Attorney.

An Enduring Power of Attorney (an 'EPA') is a document that you sign to appoint somebody to act for you should you become Mentally incapable. (You can also specify it to start if for any reason you become incapable of managing your own affairs).

If you do not have an Enduring Power of Attorney, then if for any reason you suddenly become unable to manage your own affairs, e.g.

• You suffer an accident and are confined to bed or hospital
• You suffer a more serious accident which permanently incapacitates you
• You become mentally incapacitated as a result of old age or for some other reason

Then the only way that your financial affairs can be managed is by an application (by a relative or other person close to you) to the Court of Protection. This can take up to 10 months and cost up to £1,000 to process - during which time your finances could be seriously damaged - and the person authorised to handle your affairs on your behalf is not only unlikely to be who you would have chosen, but may even be a Court Official - who can (and will) charge every time he/she acts for you.

If you have an Enduring Power of Attorney, your chosen representatives can act for you straight away if you become unable to handle your own affairs and within a few weeks if you become mentally incapacitated.

Long-term care

People are living longer and longer. So it's a real possibility that you or your partner may have to go into long-term care. Or perhaps stay in your own home and pay for long-term care there.

What it costs

• The cost of a nursing home is typically around £30,000 a year, more in London
• If you live in England and your assets are worth £20,000 or over (and that includes your home), you may not get any help from the State. There are differences in charging rules, depending on where you live

Long-term care insurance

To avoid having to use your lifetime savings or sell your home, it's worth considering an insurance policy. This is generally designed to pay out a regular income to you or an officially recognised provider, should you no longer be able to perform certain daily activities.

• A pre-funded policy - Could be ideal if you don't think you'll need care for quite a while. You can pay in one lump sum or make regular payments
• An immediate need policy - Useful if you need to pay for care straight away. You use a lump sum to buy an annuity. The income from this then goes towards your care

Funerals

Funerals aren't cheap. A traditional funeral costs on average just over £3,307, with a cremation at around £1,954. So to avoid leaving your family with a significant bill it's worth planning ahead. Either set aside a pot of money or take out a pre-paid plan or life cover scheme.

• Pre-paid plans
• Life cover schemes - speak to a Financial Adviser