Basic elements of Inheritance Tax Planning:
- The current Nil Rate Band (NRB) before Inheritance Tax is chargeable is £325k
- From 2017 a new tax free Main Residence band will increase the threshold by £100k initially and by £25k every year thereafter up to a max £175k in 2020 provided the property is left to your children or grandchildren. This will increase the max combined tax free allowance available to £500k per person.
- Your UK domiciled spouse or civil partner’s unused allowance can transfer to you on their death creating up to £1,000,000 tax free.
- Transfers between UK domiciled spouses or civil partners are exempt.
- Lifetime gifts / Potentially Exempt Transfers (PET’s) if survived by 7 years can fall outside of your estate and free from Inheritance Tax. In default they are subject to taper relief.
- Gifts with reservation (GWR) i.e. reserving the benefit of an asset will return it to your estate for Inheritance Tax purposes on death.
- £3,000 per year can be gifted each year tax free.
- £250 per beneficiary can be gifted each year tax free.
- Gifts from your disposable income each year are exempt.
- Gifts in consideration of marriage are exempt up to £5,000 per child, £2500 per grandchild and £1,000 to any other.
- Gifts to registered charities are exempt.
- Agricultural property can attract Agricultural Property Relief (APR) and thereby exemption from Inheritance Tax.
- Business property can attract Business Property Relief (BPR) and thereby exemption from Inheritance Tax.
- A 10% gift of your estate to charity can reduce Inheritance Tax to 36%.
- Lifetime transfers into trusts can remove assets from your estate if survived by 7 years however they are mostly chargeable transfers and attract a lifetime rate of 20% if the total amount over the preceding 7 years exceeds the NRB.
- Lifetime transfers into disabled persons trusts are exempt.
- Dependent on your circumstances some trust options available are: packaged Gift Trust (Holds Gift of an Investment Bond) /Discounted Gift Trusts (Gives away capital but reserves income stream for life) / Loan Trust (Allows access to capital but not growth) or more bespoke:
- Discretionary Trusts / Interest in Possession Trusts / Accumulation Trusts / Bare Trusts.
Specific instructions and advice are required for each.
- Alternatively rather than giving assets away you could take out a Life Assurance policy written into trust to discharge any Inheritance Tax that should arise on your death.
All of the above are subject to numerous technical conditions and professional advice is required.
When advising you on your Will and Wealth Management Planning we can explain your options and point you to the appropriate advice from financial and tax experts as required.