ADVICE ON INHERITANCE & TAX PLANNING

Estate and Inheritance Tax Planning

 
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ESTATE & INHERITANCE TAX PLANNING


An individuals’ estate includes everything they own or in which they own a share in – for example – joint held property.  Therefore, thinking about Estate Planning and Inheritance Tax (IHT) well in advance ensures that assets can pass to your chosen beneficiaries in a tax efficient manner. To return to, or find out more about the importance of having a will follow the link below:

Effective estate and IHT planning


As with your Will, you should look to review your current IHT plans on a regular basis. This will ensure that any changes in your Personal Asset Summary are taking into consideration, as well as making the most of any changes in IHT law which may have a positive or negative impact on your estate.

Each individual is entitled to an IHT Nil Rate Band of £325,000.  IHT is payable on any excess above the Nil Rate Band @ 40%.  A Husband and Wife (but not unmarried couples) and Civil Partners are able to transfer any unused nil rate band to each other, which can increase the exemption on the second death to £650,000. Since 6 April 2017, there is an additional nil rate band available when a main residence is passed on death to direct descendants.  For 2017-18 this is £100,000, increasing to £175,000 from April 2020.  Again this is transferable between Husband and Wife or Civil partners.  This additional exemption does not apply, however, if the total estate value is in excess of £2million.

Early planning can help to mitigate any IHT due.  A number of planning points that could be considered are detailed below:

  • Gifts – gifts are treated as Potentially Exempt Transfers (PETs) and fall outside of your estate after seven years from the date of the gift. The gift has to be made outright and the donor cannot retain any benefit from the asset gifted. So, for example, you cannot give away your house and continue to live in it unless full market rent is paid. Care also needs to be taken if the asset you are gifting could give rise to a capital gain – please ask for further advice on this point before doing anything.

  • Trusts – these can be used to remove assets from your estate whilst providing some asset protection as the beneficiaries do not actually own the assets – ownership vests with the trustees – so they are protected from things like bankruptcy and divorce.

  • Life policies – sometimes it can be a simple to provide a sum assured to pay out on death to cover the IHT liability – either in full or a substantial part of it.

  • IHT efficient investments – these take advantage of IHT Business Relief.

  • Discounted Gift Plans – these can remove an amount immediately from the estate with a further reduction in seven years.

We can advise further on all aspects of the above points.

Summary


IHT is raising ever increasing revenues for the Exchequer.  The liability can be significant and in some cases HMRC can become the largest beneficiary of an estate.  With some advance planning, steps can be taken to mitigate the liability.  Please let me know if you want to discuss your own situation and possible ways of reducing IHT, allowing you to leave more to your chosen beneficiaries.