Inheritance tax planning

If your estate is likely to suffer inheritance tax (IHT), there are accessible solutions and strategies that you might wish to consider to mitigate this tax.

Even if your own estate is not caught by inheritance tax you should consider the position of your children and other beneficiaries and what you may inherit from parents for example. You and your children or other beneficiaries may prefer it if your estate or gift was paid in trust so it is largely protected from IHT and unforeseen family circumstances.

The two situations when IHT might affect you are on death or when lifetime gifts are made in certain circumstances. However there are allowances and tax breaks to look at first that may cover the value of your estate or gift to reduce or avoid the inheritance tax burden. Some of the most common to be aware of are:

  1. Nil rate band allowance. This is the first part of the value of your estate or gift that is not subject to IHT. It is currently £325,000 per individual. For married couples or civil partners, if all or part of the nil rate band is unused on the first death, it is transferred to the survivor and added to the survivor’s nil rate band totalling £650,000.
  2. Residence nil rate band allowance. This is an additional allowance currently worth £125,000 also transferrable between spouses and civil partners. It is a complicated relief applying to a gift of an interest in property to direct descendants and we are able to advise on whether this applies in your circumstances on an individual basis.
  3. Annual gift exemption of £3,000.
  4. Small gift allowance of £250.
  5. Gifts in consideration of marriage.
  6. Regular gifts out of excess income after normal expenditure.
  7. Gifts to charity.
  8. Business and agricultural property relief.

Making outright gifts to family is on the face of it a straight forward way to save tax. If you survive seven years and have had no use or benefit from the subject of the gift, the value drops out of your estate.

There are a few practical problems here. Can you really afford to give away assets and have no use of them ever again? In additional you lose control of the asset and it will be subject to the wishes and circumstances of the recipient’s estate.

There are financial investment solutions that can significantly mitigate IHT and, subject to health and age, a straightforward solution would be to take out life insurance to cover the tax liability.

We work with trusted providers of financial solutions and deal with accountants and bespoke tax solution providers to make sure you have the ability to make a choice about what steps to take.

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