MINIMISE INHERITANCE TAX
Inheritance tax (IHT) is a charge on your assets on death. Lifetime gifts made in the seven years before your death can also be brought back into account for tax purposes.
IHT is also charged where an asset appears to have been given away but where, in fact, you retain the use of that asset.
When you die, the IHT charge on your estate is at 0% on the nil rate band at 40% on the remaining balance.
The nil rate band is currently £325,000. However, the nil rate band available on your death can vary as it can be used up by lifetime gifts made in the seven years before your death.
Ways to “manage” IHT
Making a will is a major part of estate planning as you can make sure that assets are distributed in line with your wishes. Without a will your assets will be distributed according to intestacy rules and may be liable to IHT that could otherwise be avoided.
Keep below IHT threshold: The nil rate IHT band is transferable to a spouse/civil partner on death resulting in a total nil rate band of £650,000 for couples. In the 2015 Summer Budget a new ‘main residence transferable allowance’ was announced which gradually increases from £100,000 in 2017 to £175,000 per person by 2020/2021 which may allow people to avoid inheritance tax on property.
Give your assets away and live for least 7 years; then all gifts are free and avoid inheritance tax. If you die within 7 years then inheritance tax will be paid on a reducing scale. There are a number of other allowances that can be claimed.
Put assets into a trust; they will not form part of your estate on death and avoid inheritance tax.
Take out life insurance for the potential inheritance tax bill and place the policy in a trust to ensure it is paid outside of your estate.
Leave something to charity; such gifts will not be liable for IHT. If you leave at least 10% of your total assets to charity then the inheritance tax rate on the remaining assets will be reduced from 40% to 36%.
Spend it! There is little point in being mean with yourself as you grow older for your family to be taxed at 40% on some of your assets. Spend it!
How we can help you
Elizabeth Russ is a Solicitor and Director at The Commercial Law Practice and is experienced in all aspects of inheritance tax and estate planning, the preparation of tax efficient wills and the creation and administration of Trusts. If you, or your family, may be impacted by inheritance tax then we have expertise that may be able to help you. Please contact Elizabeth Russ (T: 01305 55014 E:email@example.com) for more details or to make an appointment to meet us.