Sir Bruce Forsyth’s has reportedly left all his estate to his wife in order to avoid paying Inheritance Tax on its £17 million worth.
The inter-spouse Inheritance Tax exemption is one of the simple tax reliefs around. This relief imposes that transfers from on spouse or civil partner to the other are exempt from Inheritance Tax.
Without this, if an estate was in excess of the £325,000 limit at which Inheritance Tax becomes payable, it could force the surviving spouse to have to sell their home to simply pay for the tax bill.
Letter of wishes
Sir Bruce evidently used the inter-spouse exemption to avoid paying Inheritance Tax. He probably left his wife a ‘letter of wishes’ in order to distribute his wealth to his children. However, this letter of wishes is neither an instruction nor a binding document.
In Sir Bruce’s case, he had to trust his wife to survive the gifts by over 7 years because any assets she gifts to the children will be subject to Inheritance Tax if she dies within this period.
If his wife does survive 7 years from the date of the gifts, then the children will have received a large portion of the estate tax free.
Leaving your estate to your spouse means it will be exempt from Inheritance Tax. It is legitimate and not a tax dodge. You can combine this tax relief with ‘letter of wishes’, asking them to use the inheritance to make gifts to your children or other family members.
However, this letter is not binding. The gifts become exempt from Inheritance Tax if your spouse then survives seven years.