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Inheritance Tax Planning
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Inheritance tax is a tax on the estate (the property, money and possessions) of someone who’s passed away. However, Inheritance tax can sometimes be payable on certain lifetime transfers at the time they are made.
How much you pay depends on the value of your death estate which is comprised of the market value of assets after any debts and liabilities.
Why is it important?
Inheritance tax affects many, not just the wealthy. More and more people are paying inheritance tax at an eye-watering rate of 40% year on year. HMRC has said, this has primarily been driven by rising asset values, with residential property making up around a third of the total value of taxpaying estates. You have worked hard all your life and built up a level of wealth after paying taxes. Yet not all of it may be inherited by your loved ones. The amount your estate might have to pay in inheritance tax could be a nasty shock to your loved ones, so planning ahead is vital. Inheritance tax is, after all, considered to be a voluntary tax and with the right timely advice and proper planning any estate can be protected.
When you die, the government assesses how much your estate is worth. But the biggest thing that usually pushes people over the limit is a house or any other property you may own. IHT may also have to be paid on gifts made or transferred to trusts within the last seven years prior to your death. The overall IHT amount payable is then calculated after any debts and funeral expenses etc. have been deducted.
Most estates don’t have to pay inheritance tax because the first £325,000 is exempt from IHT. In addition to this, each individual may be able to claim an additional allowance of £175,000 per person is known as Residence Nil Rate Band (RNRB), on top of their existing £325,000 inheritance tax exemption. This new tax allowance together with NRB will allow a couple to pass on £1m estate tax-free. However, NRB and RNRB is frozen until tax year 2029/2030. This means more and more estate will come under inheritance tax radar due to increase in property prices as a result of inflation.
Anything left to a spouse or civil partner is exempt from IHT. When a spouse or civil partner dies, any unused part of their NRB/ RNRB can be passed on to their surviving partner.
You can also make gifts that avoid inheritance tax, known as potentially exempt transfers. However, you must subsequently survive for at least seven years. You can also give away up to £3,000 each tax year as free gifts.
No one wants to contemplate their own death. However, ignoring the issue of inheritance tax could inflict headaches upon loved ones during a very stressful time. The idea of 40% of that sacrifice not going to their family is hurtful. We can reduce or even negate this hurt.
The good news is there are a number of steps most people can now take to reduce their exposure to IHT. There are a host of simple planning measures that can save you a fortune in inheritance tax such as getting your Will in order, moving your ISAs to inheritance tax-free options or just giving away your excess assets while you’ve still got at least seven more years on the clock. With some careful forward planning, you can ensure that you obtain the maximum inheritance you wish for them to receive, without having to sacrifice more tax. Inheritance tax planning should begin early in life. The sooner you begin, the more effective the inheritance tax planning it is. In other words, the more time you have, the more efficient you can be with tax.
Family Investment companies have become a popular alternative to trusts in order to protect family wealth. This was mainly due to a complete overhaul of the trust regime by Financial Act 2006 and the government’s commitment to reduce the corporation tax rate. A family investment company (FIC) is simply a private company whose shareholders are members of the same family and whose memorandum and articles of association can be drafted to suit their needs. The way the shares are structured allows the passing of ownership of the assets to the next generation without older members losing control too soon. Shareholders in the company are from different generations. Since the company is involved in investment activities, FIC’s are unlikely to attract inheritance tax relief. However, inheritance tax mainly arises from giving away capital appreciation and also from the gift/assignment of the loan.
How can we help?
We can review your estate or the estate of your family members, establish the potential exposure to inheritance tax and propose both long term and short-term strategies to mitigate your tax liability.
Get in touch with us today.
Disclaimer: The information on the Apex Estate Planners Ltd website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties express or implied
