Wills, Tax & Trusts

Inheritance & Tax Planning


Inheritance Tax Planning
Inheritance Tax (IHT) is charged at a rate of 40% upon your death, over and above the available Inheritance Tax nil-rate band. However, this liability may be significantly reduced through the use of Inheritance Tax allowances and appropriate planning.

Lifetime Gifts
You may make unlimited gifts to individuals throughout your lifetime. These are known as Potentially Exempt Transfers (PETs). Provided you survive a period of 7 years from the date of the gift, the transfer will be exempt and fall outside your estate for Inheritance Tax purposes. If you should die within the 7 year period, the failed PET will eat into your Inheritance Tax nil-rate band. Once the nil-rate-band has been exhausted, the balance will be taxed at 40%, and there will be no nil-rate band available for your remaining estate. Therefore, timing is crucial.

You can transfer assets out of your estate onto a protective Trust, such as a Discretionary Trust, for the benefit of named beneficiaries. You can ensure you still retain control of your property, investments, farm or business, though the ownership is in the hands of others – the Trustees. The Trustees may include members of your family and/or your professional advisors. Settling assets onto a Trust is similar to making a Lifetime Gift. If you survive seven years, the value of the assets will fall out of your estate for Inheritance Tax purposes, provided specific criteria are met.

Agricultural and Business Property Relief
Inheritance Tax reliefs are available for business owners and farmers, on their property, premises and assets. However, these reliefs are not only available to those with farms or businesses; certain shareholdings can qualify for Business Property Relief (BPR), provided that you hold the shares for at least two years. These will typically be investments in companies that are not listed on any stock exchange, or shares in qualifying companies listed on the Alternative Investment Market. It should be noted that not every interest in a business will have the benefit of BPR. A business which only generates investment income will not attract BPR. This will therefore exclude residential or commercial property letting businesses.

Some buildings, land, works of art and other objects can be exempt from Inheritance Tax, particularly if they are of historical interest. The condition is that they are properly looked after and made available for the general public to view throughout certain times of the year.

Annual Allowance
Every individual is entitled to gift up to £3,000 each tax year, free of Inheritance Tax. You may utilise any unused annual allowance from the previous tax year, up to a combined allowance of £6,000. In addition to the annual allowance, gifts of up to £250 may be made to any number of persons. If the gift exceeds £250 in value, then it will form part of the £3,000 allowance. In addition, in some circumstances, for example marriage, gifts up to a certain value are exempt from Inheritance Tax.

Gifts out of Income
It is possible to make gifts free of Inheritance Tax if they are made out of income surplus to your normal expenditure. It is important that the gifts adhere to the strict guidelines laid out by HM Revenue & Customs. Amongst other requirements, these gifts must be made on a periodic basis, and we would strongly advise detailed records are kept of these payments.

Exempt Beneficiaries
Gifts between spouses are exempt from Inheritance Tax. Furthermore, the second deceased spouse will be entitled to utilise the unused nil-rate band of the first deceased spouse. This is known as the transferable nil-rate band.

Gifts to registered charities, sports clubs and the main political parties are exempt from Inheritance Tax. If you leave 10% of your ‘net’ estate to charity upon your death, a reduced rate of Inheritance Tax at 36% will apply to the taxable estate.

How We Can Help
This is only a brief overview of the exemptions available. We suggest you seek professional advice before undertaking any IHT planning. We have a wealth of expertise available to advise families, business owners and farmers regarding the best approach to Inheritance Tax planning and the practical steps to mitigation.

Contact one of our Private Client lawyers now on 01823 337636 to see how we can help you mitigate your liabilities through the use of various exemptions outside of the IHT threshold. Alternatively, completely the form below and we will contact you.

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