Severance of Tenancy agreements between spouses protects the estate by changing the legal way in which property is owned.

This has little effect on a day-to-day basis; however the benefit of owning property in this way is felt when it passes to your children. At that point Inheritance Tax liability is calculated. Severance of Tenancy in conjunction with a Discretionary Will Trust can effectively double the limit above which Inheritance Tax is paid, from £300,000 to £600,000, potentially saving £120,000 in tax.

The limit for the tax year 2007/8 is £300,000 which is charged at a nil rate and any excess is charged at 40%.

The Chancellor has announced that the IHT limits will increase as follows:-

2008/9 - £312,000
2009/10 - £325,000
2010/11 - £350,000 (proposed change)

Levels, bases and relief's from taxation are subject to change.

Click here for more information about Gifting Assets (Deprivation of Assets).