At Attwoods we can help with all aspects of inheritance tax planning.
Planning to minimise the liability to inheritance tax (IHT) is a team effort involving you and your professional adviser. To enable long-term objectives to be set, it is necessary to make decisions about your finances and your family.
Now! IHT is currently payable where a person’s wealth is in excess of £325,000 (2018–19). Thus, if you own your own house and have some savings, life assurance policies, or business assets, your estate could be liable.
Most gifts made during your lifetime will be entirely exempt from IHT if you live for seven years after making the gift.
When you die, IHT will be charged on your personal wealth, together with all or a proportion of your lifetime gifts made in the preceding seven years.
The full rate of tax is 40%, but this is reduced on a sliding scale for gifts made between three and seven years before your death.
You must think about the following:
You need to make sure that you and your spouse are properly provided for, particularly in retirement. It would not make sense to give assets to your children only to find that in later life you need to ask for some or all of them back!
A transferable nil-rate band has been introduced in order to take the family home out of IHT for all but the wealthiest. This will apply when a main residence is passed on death to one or more descendants (including a child, stepchild, adopted child or foster child) of the deceased and their descendants.
The value of the main residence nil-rate band for an estate is the lower of the net value of the interest in the residential property (after deducting any liabilities such as a mortgage) or the maximum amount of the band.
The qualifying residential interest is limited to one residential property but personal representatives are able to nominate which residential property should qualify if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.
The allowance takes effect for relevant transfers on death on or after 6 April 2017. It will apply to reduce the tax payable by an estate on death; it will not apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death. It has been set at £125,000 for 2018-19, rising by £25,000 annual increments so that it reaches up to £175,000 for 2020-21.
This nil-rate band is also 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 £175,000 in 2020-21) are passed on death to direct descendants.
To ensure that the wealthier estates continue to make a greater contribution to IHT receipts, there is a tapered withdrawal of the main residence nil-rate band for estates with a net value of more than £2 million (at a withdrawal rate of £1 for every £2 over this threshold).
You need to think about what degree of control you would want your children to have over any assets you may transfer to them.
You also need to work out how much your spouse would need if you were to die first. This would, of course, have to be reflected in your Will.
In addition, you need to find out the intentions of parents or elderly relatives about their own assets.
In general, a business you control will attract business property relief of 100%. In other words, your business can be passed on with no IHT being paid.
Assets owned by you but used by a partnership in which you are a partner, or a company you control, attract business property relief of 50%.
Similar reliefs apply to agricultural property.
The IHT standard threshold of £325,000 (2018–19) defines the upper limit of what is commonly known as the IHT nil-rate band.
There is a concession for married couples and civil partners. With effect from second deaths on or after 9 October 2007 the unused percentage of the nil-rate band from the first death estate can be carried forward and added to the nil-rate band available to the second. This combined threshold for couples is therefore set at a maximum of £650,000 for 2018–19.
This arrangement applies no matter how long ago the first death occurred.
This fact sheet shows that we are living in an age of IHT planning opportunity. What you do is your decision, but the sooner you enlist the help of professional advisers the better. Remember, successful IHT planning has to be a team effort.
If you would like advice on inheritance tax planning, please contact Attwoods today. We will be delighted to assist you.