Log in to Zenplans Pay Online
Planning ahead can significantly reduce the inheritance tax (IHT) payable on your estate, helping you pass more to those you care about. A timely review of your options—and professional advice when preparing a Will or arranging your estate—can make a material difference.
We provide advice on all aspects of IHT planning, which could be key to mitigating the amount of inheritance tax that you might need to pay on your estate.
Every person in the UK has an allowance for IHT, known as the Nil Rate Band (NRB). For an individual, this is £325,000, but this can be transferred to a spouse so that a couple can have an estate worth £650,000 and not pay any IHT.
Any amount over this allowance will usually be taxed at 40 per cent unless other reliefs are available.
Since 2017 families have also been able to make use of the Residence Nil-Rate Band (RNRB), which is an additional allowance connected to property.
This allowance works alongside the Nil-Rate Band to allow couples with children to pass on up to £1 million tax-free, as long as a property that you owned at some time used as a dwelling by you, is passed on directly to your lineal descendants. The RNRB is tapered where the estate exceeds £2 million—£1 of RNRB is lost for every £2 over the threshold. Note the RNRB is not available if there are intervening rights of residence to third parties – such as an unmarried partner or if the gift of property is to other relatives, such as a niece or nephew. This often catches people out.
Practical tip: Keep clear records of gifts, dates and exemptions used to support executors and reduce the risk of unnecessary IHT.
Certain assets receive relief from IHT these include Business Property, Agricultural Property, environmental land us, woodlands and Heritage Assets. These reliefs can reduce or eliminate the value of an asset being included within an estate, but they often rely on certain conditions being met. It is best to seek legal and accountancy advice as to the nature of the assets to ensure that you are most likely to be eligible for such relief and how the relief might apply to your specific estate. Such reliefs are currently in a changing landscape and so it is important to stay abreast of changes.
Anything left to a UK charity during your lifetime or in your Will won’t count towards the total taxable value of your estate. If you leave at least 10 per cent of your estate to a UK registered charity in your Will, then not only are the charitable gifts exempt themselves, but the normal rate of inheritance tax payable by the rest of your beneficiaries will be reduced from 40 to 36 per cent.
Trusts can play a role in reducing a family’s exposure to IHT so that more can be passed on to future generations, but they also provide for family members who are too young or vulnerable to deal with financial matters or who are going through a divorce.
A trust is a legal arrangement where you gift cash, property or investments to a separate entity (the trust). One who gifts assets is the Settlor, the trustees then oversee the management of the assets for the benefit of a third party or parties.
One of the main benefits of a lifetime trust is that, should you elect to act as the trustee, you would continue to maintain control over the assets gifted whilst your estate’s exposure to IHT is reduced as, after seven years, the gift is out of the Settlor’s estate completely, provided you retain no benefit in the trust.
Palmers can also advise on robust Life Interest Trust Wills – offering protection for the survivor of a couple for their life, but ultimately protecting the assets concerned for the first to die’s ultimate beneficiaries – e.g. their children. These are commonly used if couples wish to protect against future uncertainties, such as the future care of the survivor, the survivor falling out with the children or the survivor remarrying.
For help with any of the above, please contact one of our expert solicitors.
Stay connected
Join our mailing list for the latest legal updates, news, and events.
