What have you done about your Inheritance Tax Problem?
And the problem is
Net household wealth grew by 8.4% in 2020 and continues to grow according to the Office of National Statistics. The Halifax says the average house price is now £272,992 which represents quarterly growth of 3.4% and if you look on a regional basis the figures are quite staggering.
At the same time, the reality is that the tax reliefs the Chancellor gives us are frozen, in fact the nil rate band was last increased in April 2009 to £325,000 and is fixed now until April 2026. It is also worth pointing out that not every estate will be able to claim the Residence nil rate band.
The consequence is that more estates will be caught in the Inheritance Tax (IHT) trap. We all have a duty and responsibility to take ownership of the problem, which I grant you isn’t that easy to talk about in families for fear of being thought of as a ‘gold digger’. Not raising the issue is of course, a fait a complet.
Is everything up to date?
Checking ‘the Wills and Power of Attorney’ documents are in place and up to date is by far the easiest way to get the conversation started. Dealing with a Willwriter and Inheritance Planner to check everything is as it should be is the best way forward. Not many solicitors (that I know of) will give you the same time and advice. Members of the Institute of Professional Willwriters is a good place to start.
Know your numbers!
Legacy practitioners will help you to understand where you are, i.e. what your estate is valued at and what the available tax allowances are likely to be. This in turn will create a pathway forwards to building a strategy that is best for you.
We are where we are
It’s often staggering to tot up the value of your estate and wonder how that happened! Usually it is simply down to time and inflation, although I won’t leave out good decision making through life.
What to do about it?
Now, having reached the point of wanting to take some positive steps, you will find two basic choices, start gifting assets now whilst you are alive, or leave it til the date of the death. The skill in building a plan will be case specific.
You need to understand the timing rules here, there is some free gifting allowed but there is the 7-year rule and 2-year rule.
- Assets transferred between a spouse or civil partner are exempt.
- All in-life gifts to registered charities are exempt, and charitable gifts at death of over 10% of your estate sees the Inheritance Tax rate reduce from 40% to 36%.
- Wealth transferred in-life made within the 7 years prior to death may still be subject to IHT, except you can use your Annual Gifting Allowance of £3,000 per tax year.
- Unlimited small gifts of up to £250 subject to other allowances.
- Wedding or civil partnership gifts can be made depending on relationship to the Recipient of between £1000-£5000.
- Regular gifting of excess income over normal expenditure are exempt providing you maintain your standard of living without living off your savings.
Trusts can help but buyer beware
Transferring wealth into trust is a great way to reduce your potential to IHT, but they can be a burden, they will still pay tax, they only get half the tax allowances a person gets, you will need to register your trust under the Trust Registration Service and you’ll probably need to engage a professional to stay on top of the duties and obligations of trust management.
Not all trust are the same, so it goes without saying that they will have different features and benefits, and not always be as suitable as you may think, or hope!
Dealing with Probate and Inheritance Tax
IHT is due as at the date of death, the deadline (pardon the pun) for paying it is 6 months. Typically, the estate cannot be accessed and distributed until a grant of probate is obtained, which is not possible until IHT has been paid. A lot of estates will not have the liquid funds to pay the tax, but it is possible as an Executor or Personal Representative of the deceased to get a specialist Probate Bridging Loan which is usually secured against itself, removing any personal risk thankfully.
Not having to pay IHT then removes this burden.
If you’re a late comer to Inheritance Tax planning
So, we know that the 7-year gifting rule may not be a suitable option to everyone to mitigate an IHT liability, but don’t worry because there’s also a 2-year rule you can look at. Move funds into an investment that benefits from Business Relief (BR) and given 2 full years of holding it, that investment will be exempt from IHT.
I can hear you saying that a 2-year timeline may not be quick enough, or you can’t or don’t want to risk that length of time. You want something with more assurance of success. Well now there is and you can get immediate relief from IHT, no timeline to qualify. How? Read on because this is a great opportunity to take care of an otherwise guaranteed liability.
You would still need to invest in a Business Relief Investment, the provider I have exclusive access to provides you with life cover at the IHT rate of 40% for the first 2 years, thereafter the BR takes over. There is no medical examination or questionnaire. The independent financial advisers I recommend are Financial Ombudsman (FOS) and Financial Services Compensation Scheme (FSCS) protected. The investment organisation they use has £6.5Bn assets under management with 200+ institutional investors and 28,000 clients. Can you afford to pass this real opportunity by without taking a look?
Even if you are ‘property rich and cash poor’ the opportunity is still there for you. We can help.
When you know there is a 100% guarantee of having to pay IHT, any option is a good one and worth a look. Please get in touch and we will make you an introduction that could just save you and your family tens of thousands of pounds.
Here’s our first case study, more to follow:
Professional Will-writing & Inheritance Planning Made Easy