Inheritance Tax

You can plan your way out of it
Use what tools the Government has given you
Record and document everything, your Executors may need it one day

Inheritance Tax (IHT) could cost your loved ones dearly when you die, yet it is legally possible to avoid this. Our agenda includes quite a wide range of options you can implement depending on your circumstances both now and as time goes by.

Inheritance Tax is only owed if the value of the deceased’s estate (or a transfer in connection with a trust) exceeds the then available Nil Rate Bands. The executor of the deceased’s Will has to pay the IHT due from the deceased’s estate (or the trustees would pay the tax on trust assets) within 6 months of death to avoid accruing interest. This is usually before the Grant of Probate is issued and can mean the executor has to either borrow the money or even pay it from their own funds because the assets are still tied up in the estate e.g. couldn’t sell the house in time.

So where do you start with planning? The first place is to visit the range of exemption and allowances the Government have given us. These are worth pursuing and will make a difference over time, but typically will not solve the problem as quickly as you might want.

What has to be considered in the equation is your age, health and the make up of your estate assets and liabilities, and then we have to consider your family. These factors help us to get to know you and recommend the right solutions. Here is a short list of the major ones to think about:

Exempt beneficiaries
Gifting allowances & reliefs
Transferable nil rate band
Getting married/civil partnership
7/2/0 year Gifting options
Give it away & keep control if it
Trusts
Deed of Variation

After rocketing house prices, many more people are getting caught in the IHT trap, and of course the current threshold hasn’t been changed since 06/04/2009 so it is catching more and more of us. A lot us don’t realise that we only have to receive an inheritance from parents or grandparents, and usually there are two sets of each, and this can push the estate value of the recipient well over the IHT threshold – this can easily be avoided with careful planning.

What should you do next? 2 crucial things..

get the ‘right Will’ in place, and
get straight forward practical Tax Advice

Inheritance Tax Tips

The Annual Exemption – you can give away £3,000 each year, so a couple can give away twice this amount. If you don’t use this allowance one year, you can use it in the next year.
Gift Assets to your Children – these are known as ‘potentially exempt transfers’ (PET’s) and provided you survive 7 years then the job is done. Who should make the gift? Will you lose control of the asset that you’ve gifted? Well, you can protect the gift in the hands of the recipient so you don’t need to lose total control of it.
Deed of Variation (DoV) – say a relative dies and leaves you an inheritance that creates you an IHT liability. Use the DoV procedure to vary that Will after death and set up a Trust to receive the inheritance for the benefit of you, and your family. There are time limits but this works very well if set up correctly.
Gift out of regular income – if you have an IHT estate and your income is higher than your expenditure, the problem will only get worse as time goes by. Gifting the excess out of regular income to your children is immediately exempt from IHT. The rules can be tricky to implement but this is a very significant exemption if used correctly.
Business Property Relief (BPR) Investments – reduce your exposure to IHT but utilising investments that qualify for 100% or 50% reduction in the IHT rate where you have owned the investment for 2+ years (and of course hold them at the date of death), useful for funds you don’t really need access to in later life. You can still get an income from BPR investments, and if you really do need them, they’re still in your name and accessible.
Settlor Excluded Trust – if you want to gift an asset to your children to avoid your IHT after 7 years, but the asset has gone up in value (like a house) and would trigger a CGT liability if you sell it, you could instead set up a Settlor Excluded Trust and transfer the asset to that trust. As you are the Settlor and a trustee you therefore retain control of the asset, but as you will have no benefit from it, given 7 years it will be out of your estate for IHT and you will get holdover relief for CGT as well.
Discounted Gift Trust – can seem attractive and you can get an immediate IHT exemption for part of your initial investment. The trouble is the portion that is exempt is based on your age and health so it may not be as great as you had wished for.
Family Protection Trusts (FPT’s) – avoid the problem in the first place. If inheriting from your parents is going to give you an IHT problem, get them to set up FPT’s because with their assets ‘in trust’ you will have the option of borrowing your inheritance from the trust in exchange for a valid IOU so that you get the full benefit of the inheritance without incurring an IHT liability.
Discounted IHT Rate – get 4% off the IHT rate that applies to your ’net estate’ provided you give a minimum of 10% of your net estate to a registered charity or charities.

What Our Clients say

Rob was very approachable and helpful at all times. Every stage was explained and all options explained. We have confidence in him and his ability to advise us.