Dot Cottons Inheritance Tax bill

Many of you will be familiar with the character Dot Cotton from the popular TV show Eastenders.  Dot’s character has received a lot of attention recently from the public due to the large Inheritance Tax bill which was payable on her death.

Dot’s character passed away and left her property to her step-granddaughter Sonia and on the show, it came to light that Sonia would have to pay a £196k Inheritance Tax bill.  This is leaving Sonia with the difficult decision to either sell the property or come up with the funds elsewhere.

Inheritance Tax is payable at a rate of 40% above any allowances available.  Each person receives a £325k allowance which is taxed at 0%, this is called the Nil Rate Band Allowance and so anything over this sum is subject to Inheritance Tax unless other allowances are available such as:-

• Charity exemption
• Spouse exemption
• Residence Nil Rate Band Allowance
• Transferable Nil Rate Band Allowance
• Transferable Residence Nil Rate Band Allowance

Many people have speculated that they thought Dot’s assets were worth well below the Inheritance Tax threshold and that Eastenders has made a bit of a blunder by not knowing the Inheritance Tax rules! With the London property market being high, her house may have been worth a lot more than everyone thinks.

Whilst in this case the Inheritance Tax bill is fictional, it is many people’s reality.  With the Inheritance Tax threshold of £325k being frozen since 2009 and rising house prices, it is dragging a lot more estates into having to pay Inheritance Tax.  Last year between April and December £5.3 billion was collected by HMRC in respect of Inheritance Tax, so HMRC will certainly not be looking to up the Tax thresholds anytime soon because they receive a lot of money from the Inheritance Tax regime.

There are a number of legal steps that people can put in place during their lifetime to try and minimise the amount of Inheritance Tax that is payable when you pass away.  For example, £3k can be gifted away every tax year without any tax implications.  In addition, gifts to charities are also tax exempt both in your lifetime and under your will. It is therefore important to discuss your assets and finances with a professional so that we can advise you in relation to Inheritance Tax planning for the future.

It is also important to put in place a will so that the people you want to inherit your estate will do so.  Without putting a will in place, the rules of intestacy apply which are a strict set of rules which govern who will inherit your estate down your blood line.  This means that charities, friends and other loved ones may not inherit your estate if you do not put in place a will.

In a meeting with one of our specialists, we will discuss with you what your assets are and what the Inheritance Tax implications on your will are, so that you can plan for the future.

If you would like to put in place a will or Inheritance Tax planning advice, then please contact one of our specialists.  I am based in our Colchester office and can be contacted on 01206 217609 or [email protected].