Estate & IHT planning

PLANNING FOR INHERITANCE TAX

You may think that your family will not be affected by Inheritance Tax (IHT) when you die, but are you certain?

Without planning, people of modest wealth can leave an IHT bill behind but with the help of an expert, it's possible to reduce some of the liability.

The facts and figures

Each individual has a nil rate band (NRB) of £325,000.  Up to this amount there is no liability to IHT. Above this, IHT at 40% is payable, so an estate of £425,000 could result in an IHT bill of £40,000. A £625,000 estate generating a bill of £120,000 - significant by most people's measure.

An unused nil rate band can be transferred to a spouse or civil partner so effectively giving £650,000 that would not be liable to IHT on the death of the second partner.

It is very important to take into account gifts that have been made previously.  This may reduce partly or fully the available nil rate band for transfer.

Divorce and remarriage in later life can also have a significant impact.

WHAT CAN YOU DO IF YOU STILL HAVE A POTENTIAL IHT BILL?

Step 1 is to find out what your likely IHT bill will be.

• Perhaps it is small enough for you to accept and avoid the need for complex planning?
• You could spend more of your assets – why not it’s your money!
• Give away some assets - modest amounts may be within yearly or special allowances e.g. gifts on marriage, gifts out of income, annual exemption. Substantial amounts, if given without reservation, normally fall out of your estate for IHT purposes after 7 years. If you are reluctant to give away too much too soon to your own family then consider making the gifts into trust.
• Use a recognised investment scheme which provides IHT mitigation benefits – a Gift and Loan Scheme or a Discounted Gift Scheme are examples of these.
• For some, using investments that qualify for Business Property Relief (BPR) brings IHT benefits, with qualifying assets falling out of the estate for IHT purpose after 2 years. Please note: The value of investments may go down as well as up.
• Take out a suitable Whole of Life Insurance in Trust to pay the IHT liability. For a married couple this is normally a joint policy to be paid out after the second death. Remember this does not save you any IHT, it just provides a sensible means by which to pay it.

Important: The above is only a very brief summary of some of the strategies available and does not constitute specific advice. Inheritance Tax is a complex issue and it's important to speak to a specialist about your personal situation. To talk to one of the team at LIFT-Advice, please contact us and we'll be in touch.