Inheritance Tax Planning

Inheritance Tax is payable at 40% on any excess over your allowance which could impact your estate and the inheritance your leave.

We can advise on the inheritance tax planning opportunities available so that you can take advantage of the exemptions and allowances available in order to limit taxes payable on your estate.

For effective inheritance tax it is advisable to seek specialist advice at the earliest opportunity.

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Some of the most effective inheritance tax planning options are:

A Will

Simply by making a Will you can ensure your assets are distributed in the most tax efficient manner.

Allowable gifts

Each year you can give cash or gifts worth up to £3,000 and these will be exempt from inheritance tax when you die.

Parents can give cash or gifts worth up to £5,000 when a child gets married, grandparents up to £2,500 and anyone else up to £1,000.

Small gifts of up to £250 a year can also be made to as many people as you like.

Give away assets

You can give assets away but in order for the gift to end up outside of your estate (and not attract Inheritance tax) you must survive for seven years after making it.

Create trusts

Assets can be put into trust. This means it may end up not forming part of your estate but you may still retain some control over how the assets are used.

Surplus Income

If gifts are made out of surplus net income and they meet the strict criteria they will qualify as being exempt.

Our team also has the knowledge and experience to advise you with regard to Capital Gains Tax and Income Tax.

FAQ

Please click a question below to expand:

What is the £1 million allowance?

In April 2017, the government introduced a new ‘residence allowance’ as an addition to the standard IHT allowance. By 2020/21 each individual could have a £175,000 ‘residence allowance’ AND a £325,000 standard allowance totalling £500,000 per person giving spouses and civil partners a combined allowance of £1 million.

The rules are complex and there are criteria to satisfy, so if you want more information contact one of our specialists.

Will I have to pay Inheritance Tax?

Each individual has a tax-free Inheritance tax allowance of £325,000 which means money or possessions up to this amount can be passed on tax free (subject to certain exemptions). Anything over this will be taxed at 40%.

Gifts made in the last years before you die could also be subject to inheritance tax.

Example 1

Sid is a bachelor. He now rents after having sold his home for £330,000 and has no savings. On his death he passes everything to his niece, Lauren.

Total Estate: £330,000
Less funeral costs: £5,000
Net Estate for tax: £325,000
Less IHT allowance: £325,000
Total to be taxed: £0

Consider though if Sid’s house was worth £400,000.

Example 2

Sid is a bachelor. He now rents after having sold his home for £400,000 and has no savings. On his death he passes everything to his niece, Lauren.

Total Estate: £400,000
Less funeral costs: £5,000
Net Estate for tax: £395,000
Less IHT allowance: £325,000
£70,000 @ 40% = £28,000

Married couples and civil partners are allowed to pass their assets to each other tax-free. Any unused Inheritance Tax allowance can also be transferred to each other.

So if on a Husband’s death his assets are passed to his Wife this will be tax free. His IHT allowance of £325,000 is unused and can be transferred to his Wife. Assuming Wife has a £325,000 allowance then this can be added to her Husband’s £325,000 meaning that on her death she has £650,000 Inheritance tax allowance to pass to the next generation without Inheritance tax.

Example 1

Beverley and Stuart are married. Beverley owns the couple’s house worth £300,000 and has her own investments worth £200,000. On Beverley’s death she passes everything to her husband, Stuart.

Total Estate: £500,000
Less funeral costs: £5,000
Amount passed to Husband: £495,000
Amount exempt from IHT: £495,000
Total to be taxed: £0

Following on from the facts above, on Stuart’s death he can combine his Wife’s allowance with his to make £650,000 (£325,000 x 2). Stuart now has £495,000 plus £130,000 of his own money. This is passed on to his son, James.

Total Estate: £625,000
Less funeral costs: £5,000
Net Estate: £620,000
Combined IHT allowance available: £625,000
Total to be taxed: £0


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