Inheritance tax (IHT) can have a significant impact on the money you gift or leave to your family. Being aware of the guidelines on IHT, and the options open to you, can help you plan a secure future for your loved ones.
Providing for your family and ensuring their financial future in the event of your death can be a challenge, particularly when up to 40% of your estate may be taken in inheritance tax(nearly £3bn of UK IHT was paid in 2011/2012).
The need to plan for this future event is especially true if control of assets is important or family businesses are involved.
If you’ve not made use of your IHT annual exemption, it’s worth considering making gifts to those close to you. You can give up to £3k each to individuals during the course of the tax year – and you can also use last year’s AE if this hasn’t been used.
Latest research shows that only 48% of all UK adults have a last will and testament. But wills are essential in ensuring an individual’s assets pass as intended on their death and they have significant impact on IHT planning.We can assist with drafting a will which meets your inheritance needs and accounts for your related tax and investment planning.
If you run a family business it’s worth thinking about sharing equity with successors. Not only will this reduce your estate but if they meet the conditions for entrepreneurs’ relief then this increases the amount of gains that can be taxed at the preferential 10% capital gains tax (CGT) rate on a future exit.
Agricultural property relief (APR) and business property relief (BPR) both offer relief from IHT at rates of either 50% or 100% subject to meeting the requirements – please speak to us to determine whether your business/investments may qualify.
Putting assets into trusts for the benefit of children / grandchildren may also be worth considering in order to assist with asset protection.
Amounts up to the available IHT nil rate band (currently £325,000) can be made into a discretionary 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 exempt funds, 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.