What we can help you with
- Understanding the current Inheritance tax regime
- Planning how to mitigate Inheritance Tax
- Understanding the impact of lifetime gift
- Gifts of property and money to your family
- Gifts of income
“The only two certainties in life are death and taxes” or so the saying goes. Your estate might be liable for Inheritance Tax (IHT) and if so, your Executors will need to arrange its payment to HMRC ahead of specific deadlines. Some estates are not liable for IHT because the net value is less than the Nil Rate Band threshold (currently £325,000) but it is not that simple. Even if your estate might be worth more than this, careful planning could help save your estate considerable sums of money, given that IHT is levied at 40% on the net value of your estate above the Nil Rate Band.
There are several exemptions and reliefs that can be used to reduce the IHT burden. These include the Residence Nil Rate Band, Business Property Relief and Agricultural Property Relief. Leaving money to charities also helps reduce the IHT liability on your estate.
Gifting substantial sums of money, property or land to a family member can be exempt from Inheritance Tax if you survive 7 years after the date of the gift. The rules can be complex, but we understand them and can pass on that advice to you if you are thinking of making gifts. For more details, see “Answering your Questions” below.
If you are married and you made your Will before October 2007 your Wills may no longer be tax efficient. We can review your circumstances and advise you if a new Will would be advantageous.
IHT planning is therefore just part of the picture we look at when you come to us for advice about a new will and you may be advised, in your circumstances, that setting up a trust could be appropriate. We have been trusted to help generations of families plan for the future – whether their financial position.
The Residence Nil Rate Band (RNRB) is available in addition to the Nil Rate Band if certain qualifying conditions are met. It is available on deaths on or after 6 April 2017. For married couples and civil partners, unused RNRB can be transferred if the surviving spouse or civil partner dies after 5 April 2017 irrespective of when the first of the couple died.
Broadly, the RNRB will be available if a person’s estate includes their home (or a share in it) and it is left to their children or other direct descendants. The amount of RNRB available is limited to the value of the home that is left to the direct descendants. The maximum available RNRB is £175,000.
Note – For estates valued at more than £2 million, the RNRB (and any transferred RNRB) will be gradually withdrawn or tapered away.
Business Property Relief can reduce the value of a business or its assets when working out how much Inheritance Tax has to be paid.
Any ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes.
You can get Business Relief of either 50% or 100% on some of an estate’s business assets, which can be passed on either while the owner is still alive or as part of the Will.
Agricultural property relief is a relief from Inheritance Tax.
The relief is available on the agricultural value of agricultural property which is transferred either in lifetime (which would be a gift) or on death.
Each tax year, you can also give away some money or possessions free of Inheritance Tax. How much is tax free depends on which allowances you use.
You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.
You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.
You can carry any unused annual exemption forward to the next tax year – but only for one tax year.
The tax year runs from 6 April to 5 April the following year.
Small gift allowances
You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax.
Gifts for weddings or civil partnerships
Each tax year, you can give a tax free gift to someone who is getting married or starting a civil partnership. You can give up to:
If you’re giving gifts to the same person, you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.
For example, you can give your child a wedding gift of £5,000 as well as £3,000 using your annual exemption in the same tax year.
If you make regular payments
You can make regular payments to help with another person’s living costs. There is no limit to how much you can give tax free, as long as you can afford the payments after meeting your usual living costs and you pay from your regular monthly income.
These are known as ‘normal expenditure out of income’.
If you are giving gifts to the same person, you can combine ‘normal expenditure out of income’ with any other allowance, except for the small gift allowance.
For example, you can give your child a regular payment of £60 a month (a total of £720 a year) as well as using your annual exemption of £3,000 in the same tax year.
The 7 year rule
No tax is due on any gifts you give if you live for 7 years after giving them. This is known as the 7 year rule.
If you die within 7 years of giving a gift and there’s Inheritance Tax to pay, the amount of tax due depends on when you gave it.