Inheritance Tax Planning
Inheritance Tax – How we can help you
In addition for deaths on or after 6 April 2017 a Residence Nil Rate Band (RNRB) may mean that in certain circumstances an additional sum, currently £175,000 could be free of IHT. The rules to qualify for the RNRB are complicated and any Will you make shall need careful drafting in order to take advantage of it. For those with an estate worth more than £2m other asset planning may be needed too.
IHT is calculated by reference to the value of your estate on death and on some lifetime gifts of capital made in the seven years before death. However, no tax is charged on gifts between spouses/civil partners and usually the unused portion of the Nil Rate Band and RNRB of the first spouse/civil partner to die (even if that was before 6 April 2017) can be claimed in the estate of the second to die. There are special rules if the recipient spouse is not UK domiciled.
Inheritance Tax can be charged on gifts of capital made within three years of death and at reducing rates on gifts made in the previous four years, and relief is granted for some business and agricultural property.
An individual has an annual allowance for lifetime gifts of £3,000. This allowance (or the unused balance) can be carried forward one year only. In addition regular gifts of surplus income can be exempt from IHT. You should keep a note of gifts made and these should be detailed and accurate particularly in the case of gifts out of surplus income HMRC may enquire. However you cannot give an asset away and continue to enjoy a benefit from it without falling foul of HMRC rules.
IHT can also be chargeable on transfers into trust during lifetime, but at a reduced rate, so care must be taken when establishing a lifetime trust to ensure there are no unforeseen tax implications.
The rules give scope for planning and mitigation. If you have taken care with arrangements before death you can reduce the amount of tax charged, both by lifetime arrangements (including gifts, trusts and insurance) and by the way your Will is planned. It is possible with careful planning to make significant reductions in the potential tax liability.
Your Will can be part of a larger programme of estate planning and is often undertaken in conjunction with advice from accountants and financial planners.
At Ashton & Co solicitors we always recommend that you place your needs first. These comments are necessarily brief but If IHT planning is of interest to you our specialist lawyers are ready to guide you through this complex area.