Inheritance Tax Planning

Inheritance Tax Planning

Inheritance Tax (IHT) has traditionally been seen as a tax only for the wealthy but more and more people are finding that their estates exceed the nil rate band when property is aggregated with other assets.

While you may be expecting an inheritance involving the sale of cherished family heirlooms, your own assets or taking out expensive loans to meet tax bills, with careful planning and guidance you could minimise IHT or avoid paying it altogether.

IHT Essentials

  • Everyone’s estate is exempt from Inheritance Tax up to a certain threshold, otherwise known as the nil rate band (£325,000 in 2018-2019).
  • Married couples and registered civil partners are also allowed to pass assets to one another during their lifetime or when they die without having to pay Inheritance Tax, as long as the person receiving the assets has their permanent home in the UK.
  • In the case of ‘spouse or civil partner exemption’, it may be possible to increase the Inheritance Tax nil rate band of the second spouse or civil partner when they die – even if the second spouse has remarried.
  • Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die. The threshold can only be transferred on the second death. If the first spouse or civil partner died before 1975 the full nil rate band may not be available to transfer.
  • Recent changes to Inheritance Tax legislation witnessed the introduction of the residence nil rate band in April 2017. This is an extra £100,000 allowance for passing on the family home to direct descendants; the allowance is being increased to £175,000 over the next three years (by tax year 2020-2021).

Potentially Exempt Transfers (PETs)

If you distribute some of your wealth prior to death, there are other exemptions and allowances in the form of Potentially Exempt Transfers (PETs). From the day you give the funds away, the tax due on death is subject to a tapering over seven years. There are also exemptions using small financial gifts. Life Assurance can be a key component in inheritance tax planning as it is an astute use of trusts.

Inheritance Tax represents a 40% charge on any assets above this threshold – the rate drops to 36% if you give away at least 10% of your estate to charity.

Our Vintage Wealth Management team is fully qualified and highly experienced in all aspects of IHT. We will walk you through a range of solutions to help mitigate your IHT liability and direct your hard-earned wealth in the direction that you choose. Contact us today for expert advice and guidance.