Inheritance Tax (IHT) is a tax on your estate when you die, so not entirely popular but becoming more and more common with approximately 4 million people in Britain liable (The Telegraph, June 2010).

 

Dealing with your IHT liability is more than likely to be one of the biggest single money saving strategies you can do, potentially saving hundreds of thousands of pounds. Sadly though, it is frequently ignored, with many surrendering to the regularly told Benjamin Franklin statement 'the only things that are certain in life are death and taxes'.

 

Whether or not Benjamin Franklin had an IFA is not what we are here to dispute, but there are a number of solutions available that can reduce your IHT liability with examples including:

 

• Make a valid Will - an effective Will could help reduce your IHT bill

• Look into Exemptions - for example the first £3,000 given away in each tax year is ignored

• Consider Gifts

• Take our Life Assurance policy in Trust - this to be used to pay the IHT bill on Death

• Consider Trusts - if structured carefully, trusts can reduce or even eliminate IHT liability

 

Gifts and Transfers into a Trust generally take 7 years before they become fully exempt from IHT with access to the assets being lost which can be less than favourable to many. However due to it being a complex area many solutions are overlooked despite being designed with simplicity, control, access and with capital preservation in mind. Such solutions can remove assets from the estate within 2 years.

 

Estate Planning

 

Currently no tax is due on the value of your Estate up to £325,000 (£650,000 for a married couple) which is known as the 'nil rate band' and is frozen until 2015. Everything above this amount is taxed at 40% which many find difficult to take, considering they have worked hard to build up an Estate to pass on to their loved ones. Many items count towards your Estate, including your Property, Investments, Insurance Policies, Pension Plans, Death in Service benefits, and other personal items such as Jewellery & Cars.

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Changes from the 2017 to 2018 Tax year

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Individuals with direct descendants who have an estate (including a main residence) with total assets above the Inheritance Tax (IHT) threshold (or nil-rate band) of £325,000 and personal representatives of deceased persons.

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General Description of Changes to the measure

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This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant.

 

This will be:

• £100,000 in 2017 to 2018

• £125,000 in 2018 to 2019

• £150,000 in 2019 to 2020

• £175,000 in 2020 to 2021

 

It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

 

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

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There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021.

 

If you feel that your Estate is over this threshold, then seeking advice should be the first step.

 

There will always be an element of risk attached to any solution, but so is leaving the topic alone entirely.

 

If you would like to arrange an initial meeting with us at your convenience and at our cost to discuss how we may be able to help please contact us.