Inheritance tax (IHT) can have a significant impact on the assets you gift or leave to your family. Being aware of how IHT operates and the options open to you, can help plan a secure future for your loved ones.
Providing for your family in the event of your death can be a challenge, particularly when up to 40% of your estate may be taken in IHT (over £3bn of UK IHT was paid in 2012/2013).
The need to plan for this future event is especially true if control of assets is important or family businesses are involved.
Recent research shows that only 48% of UK adults have a will. We can assist in drafting your will to ensure your assets pass as intended. Wills can also have an impact on IHT.
Where one of the IHT exemptions is available the value of the gift is immediately removed from your estate rather than being subject to the usual 7 years.
If you’ve not made use of your IHT annual exemption, consider making gifts. Each person can give up to £3k during the course of the tax year. You can also use last year’s annual exemption if this hasn’t been used.
Other exemptions include ‘gifts out of income’, which is one of the most efficient ways of passing resources to the next generation –professional advice should be taken as you will need to prove that this is ‘excess’ income.
If you run a family business and wish to share equity with your successors, this may be facilitated if BPR or APR is available. If the recipient works in the business and they meet the conditions for entrepreneurs’ relief, gains can be taxed at the preferential 10% capital gains tax (CGT) rate on a future exit.
Alternatively BPR and APR can assist if the business is to be retained and be passed down to the next generation either during lifetime or via the Will on death.
Putting assets into trusts for the benefit of children / grandchildren may also be worth considering in order to assist with asset protection / providing for the family post your death.
Amounts up to the available IHT nil rate band (currently £325,000) can be gifted into a trust with no charge to IHT. The nil rate band is available every seven years so additional gifts can be made every seven years.
Trusts can also be funded using IHT reliefs and exemptions, such as gifts out of surplus income and assets that qualify for 100% BPR.
Making gifts out of excess income, which is free of IHT is one of the most efficient ways of passing resources to the next generation – you’ll need to seek professional advice as you’ll need to prove that this is ‘excess’ income.
Consider making gifts to children/grandchildren. Subject to surviving seven years from the date of the gift the value of the assets will be outside of your estate for IHT. To make sure the gift is effective you can no longer benefit from the assets gifted.