Inheritance Tax Planning
Make sense of Inheritance Tax
Estate planning involves tax, but it encompasses much more. As with most tax planning, the key is to know what you want to achieve? who should benefit after your death and what they should receive, but also who you might want to make gifts to now and in what form. Inheritance tax is then likely to become the main issue, with a flat rate of 40% at death to the extent that an estate exceeds the nil rate band - currently at the relatively low level of £325,000.
As your circumstances and the tax rules change, it is important to keep your estate planning under review. The earlier you start planning, the easier it may be to achieve your objectives. Without the right planning, IHT could substantially reduce the value of the estate that you want to leave to your family. Fortunately, it is relatively simple to take some measures to mitigate IHT, particularly if you decide to take action early enough.
Most business assets escape the inheritance tax net under the current rules, but private homes, investment properties as well as stocks, shares and cash are generally taxable regardless of where they are situated.
Potentially Exempt Transfers
Most gifts you make during your lifetime are not liable to IHT so long as you survive the following seven years. These are called potentially exempt transfers (PETs). Once you have survived for seven years after making the gift, it becomes permanently exempt. Gifts into certain kinds of trust can qualify as PETs.
Making lifetime gifts can be an effective way to avoid IHT. You may be able to take out insurance to cover IHT on an unexpected death within seven years of a major gift.
Exemptions
Some gifts are always exempt from IHT and it is a good idea to use them. The main ones are:
- Transfers between husband and wife, and between same-sex partners registered under the Civil Partnership Act. Lifetime gifts and transfers on death are both exempt.
The annual exemption of £3,000 each tax year. If you do not use up the exemption in a year you can carry it forward, but only for one year.
Any number of small gifts of up to £250 per donee in a tax year.
Regular gifts from your income, provided they do not reduce your usual standard of living.
Wedding gifts up to a limit that depends on the relationship of the donor to the bride or groom.
- Gifts and bequests to UK charities, political parties and for the public benefit. Making use of these exemptions should form part of your inheritance tax planning.
Inheritance Tax Planning
The earlier IHT planning starts, the more likely it is to reduce the eventual tax bill. Many IHT planning strategies involve making gifts. Before you do so, you should ensure that you have enough income and capital for your own needs for the rest of your life. Some other issues to consider are:
- Make a tax-efficient will and keep it up to date. Dying intestate is rarely tax-efficient and has many other disadvantages.
Give away assets that you will not need.
- Make use of the annual exemptions to pass down assets free of IHT. In this case, it is very much a case of ?If you don't use them, you will lose them.?
How we can help
For more information on Inheritance Tax Planning please complete the client enquiry form and one of our advisers will call you back to arrange an appointment. Alternatively you may telephone us on 01254 823 395 or email us at info@travisyates.com
The FSA do not regulate some forms of Inheritance Tax Planning.
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