Inheritance Tax Planning
“Inheritance Tax: it is, broadly speaking; a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.” – Roy Jenkins
Inheritance Tax used to be something that only the very wealthiest needed to worry about but that is no longer the case. Increased prosperity and rising asset prices have brought many individuals with seemingly modest assets within the Inheritance Tax net.
Inheritance Tax is payable at 40% on estates which exceed the Nil Rate Band -currently £325,000 for an individual and up to £650,000 for couples who can take advantage of the transferrable Nil Rate Band. In addition, from 2017 the “Main Residence Nil Rate Band” was introduced, giving inviduals an additional allowance where they pass on their main home. This will be:
£100,000 in 2017 to 2018
£125,000 in 2018 to 2019
£150,000 in 2019 to 2020
£175,000 in 2020 to 2021
Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner. The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.
Importantly, there will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.
The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021. Whilst this allowance appears to be relatively simple, it is actually quite complicated.
Careful planning can help you to reduce the impact or in some cases, avoid entirely any charge to Inheritance Tax, but as with most planning, leaving it to the last minute significantly restricts the options available. Planning could include:
- Making use of the various Inheritance Tax exemptions;
- Making gifts, either one off or regularly out of surplus income;
- Creation of lifetime trusts;
- Life Assurance policies, which can be written in trust to provide tax free benefits;,
- Investing in assets which offer complete or partial IHT exemptions
There are many options open to clients who wish to consider them including schemes which allow capital to be gifted and yet still allow access to an income stream and schemes which remove assets from the taxable estate after just two years.
Please click below for a copy of our Guide to Inheritance Tax.View
We value long term relationships with our clients; but what do our clients say about us?
Inheritance Tax: it is, broadly speaking; a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.