Inheritance Tax Planning
IHT is the tax payable on death. Transfers between UK domiciled spouses/civil partners and to UK charities are exempt, regardless of amount.
Each person has an exempt limit (known as the nil rate band) that currently stands at £325,000 July 2012. This is reduced by any gifts made within 7 years of death that are not covered by the annual exemptions or any other exemption. There are reliefs for agricultural and business property.
Subject to those matters, an estate in excess of the nil rate band is taxed on death at the rate of 40% on the excess portion.
If you have any questions or need any advice please do not hesitate to contact us on our 24 hour Advice Line 0800 526368 or email firstname.lastname@example.org
Spouses and Civil Partners
t is now possible for the surviving spouse/civil partner to make use of the unused nil rate band of the first to die.
This means that most married couples/civil partnerships will automatically have two nil rate bands to use between them. This is commonly referred to as a “transferable nil rate band”.
In the case of some marriages/civil partnerships where one of the parties has been previously widowed, or was in a civil partnership that ended as a result of the death of his or her civil partner, it may be possible to take advantage of more than two nil rate bands. It is imperative that specialist advice is taken on the transferable nil rate band.
Lifetime Planning and ExemptionsDeeds of Variation or Family Arrangement
The main idea with lifetime planning is to reduce the value of your estate for Inheritance Tax purposes.
This can be done by making absolute gifts or setting up trusts.
A person’s estate is valued for Inheritance Tax purposes by adding together the value of assets owned at death to the value of gifts made during the period of seven years before death.
Generally speaking, if you survive the making of a gift or the setting up of a trust by seven years then usually the value of the assets you have given away or put into trust will not be taxed on your death. If however you were to die within seven years of making a gift or setting up a trust, the value of the assets you have given away or put into trust will be added to the value of the assets you own at your death to calculate the amount of Inheritance Tax due.
There are certain gifts you can make that would not be included in your estate even if you did not survive the making of them by seven years:-
(a) Each person can give away £3,000 in each tax year (ending 5 April) without affecting his or her nil rate band. That exemption can be carried forward for one year only if unused. This is known as the annual exemption.
(b) In addition, each person can make gifts of up to £250 per recipient each tax year, but these cannot be made to the same people who receive the £3,000 sum.
(c) Wedding gifts of up to £5,000 in respect of your children, £2,500 in respect of grandchildren and £1,000 in respect of anyone else getting married/civil partnership will be exempt. The gifts must be made “on or shortly before the marriage/civil partnership”.
(d) Gifts out of your income can also be exempt if these are made on a regular basis and are made out of your surplus income rather than capital. If you wish to use this exemption you should take further advice.
(e) Gifts to charity
(f) Gifts of assets qualifying for Business Property Relief or Agricultural Property Relief will be exempt or attract relief for Inheritance Tax. If you own business or agricultural assets and would like to make gifts you should take further advice.
Deeds of Variation or Family Arrangement
If you have received an inheritance from the estate of someone who has died within the last 2 years, it may be possible for a Deed of Variation to be drawn up to enable you to pass this inheritance onto others without the 7 year survivorship requirement explained above applying.
Any such Deed of Variation would have to be completed within 2 years of the date of death to be effective.
There are various schemes available that claim both to save Inheritance Tax and act as an efficient investment vehicle which can often be purchased “off the shelf” through financial advisors and stockbrokers.
This is a very specialised area, which you should discuss with a specialist advisor. As Solicitors we are not able to give this advice and you should seek advice from your Financial Advisor or Accountant
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