Inheritance Tax Planning

Benjamin Franklin was right when he said the only two certainties in life were ‘death and taxes’. And when it comes to Inheritance Tax, the two things collide.

But why should the taxman take some of your assets when you die – especially since you have probably already paid income tax on the money earned to buy them and Capital Gains Tax on any profits. While it’s more difficult to eliminate completely than it used to be, there are ways to reduce the amount of Inheritance Tax you have to pay.

What is Inheritance tax?

Inheritance Tax, or IHT as it is commonly known, is payable on everything you have of value when you die. It is usually payable on death however, there are certain circumstances, if you put assets into certain types of trusts, for example, when IHT becomes payable earlier.

• When you die your assets become known as your estate. Any part of your estate that is left to your spouse or civil partner will be exempt from IHT. Unmarried partners, no matter how long-standing, have no automatic rights under the IHT rules.
• Where your estate is left to someone other than a spouse or civil partner, IHT will be payable on the amount that exceeds the nil rate threshold. The current threshold is £325,000. The threshold usually rises each year but has been frozen at £325,000 for tax years up to and including 2014/15.
• Every individual is entitled to a Nil Rate Band. If you are a widow or widower and your deceased spouse did not use the whole of his or her Nil Rate Band, the Nil Rate Band applicable at your death can be increased by the percentage of Nil Rate Band unused on the death of your deceased spouse.
• To calculate the total amount of IHT payable on your death, gifts made during your lifetime that are not exempt transfers must also be taken into account. Where the total amount of non-exempt gifts made within seven years of death plus the value of the element of your estate left to non-exempt beneficiaries exceeds the nil rate threshold, IHT is payable at 40% on the amount exceeding the threshold. In some circumstances, IHT can also become payable on the lifetime gifts themselves – although gifts made between three and seven years before death could qualify for taper relief, which reduces the amount of IHT payable.

Why do I need Advice on Inheritance Tax Planning?

You might consider taking advice on Inheritance Tax Planning to:

• Avoid Inheritance Tax.
• Reduce Inheritance Tax.
• Keep your assets within your family.
• Protect your Nil Rate Band if you were to die and your partner re-marry.
• Protect assets passed to children/grandchildren from the risk of them becoming bankrupt or divorced.
• Protect your assets from the need to fund long-term care in later life. Currently, local authorities can take 100% of all the assets in excess of £22,250 (England & Northern Ireland) to cover the cost of care.

There are a number of packaged trust arrangements that can help a large number of individuals Inheritance Tax Planning.

This is a complex area and one that we believe needs to be discussed face to face. With this in mind, please do not hesitate to contact us to arrange an appointment.

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