Many clients are concerned about paying inheritance tax as the rate of tax payable is 40%.
Our experienced team can advise you on the options available and guide you through the legal processes.
Clients often feel that it is an unfair tax, having worked hard all of their lives, paying tax along the way, only to be taxed again on their wealth when they die.
However, not everyone pays inheritance tax as there are allowances and exemptions available. Getting the right advice at an early stage is key to minimising the amount of tax you pay.
Inheritance tax is potentially payable if the value of your Estate when you die exceeds the nil-rate band threshold. This is currently set at £325,000. The value of your Estate includes everything you own in your sole name and your share of any jointly owned assets.
In addition to the nil-rate band, certain exemptions can apply so that assets can be passed on death without any inheritance tax becoming due, for example gifts on death to a UK domiciled spouse or civil partner or to a UK registered charity are fully exempt from inheritance tax. Some types of business assets and agricultural property owned by the deceased can also qualify for more favourable tax treatment.
Since the introduction of the transferable nil-rate band in 2007, any unused part of the nil-rate band of a deceased spouse or civil partner can be transferred to the surviving spouse or civil partner so as to increase their own nil-rate band. This can potentially increase the nil-rate band threshold of the surviving spouse or civil partner to £650,000. This allowance is not automatic and must be claimed within two years of death so it is essential that records are kept following the first death in support of a claim to be made on the second death, even if a Grant of Representation was not required.
For those clients owning their own home, the residence nil-rate band is a further allowance that may be available, provided certain conditions are met. For deaths occurring in the tax year 2020/2021, this means that an individual potentially has a further allowance of £175,000 to set against the value of their property.
The rules allow the unused residence nil-rate band of a deceased spouse or civil partner to be transferred to a surviving spouse or civil partner, potentially increasing their available residence nil-rate band to £350,000. These rules are very complicated so it is important to take professional advice to maximise the allowances available.
Making gifts, either to an individual or to a trust, is one of the simplest ways of reducing your inheritance tax liability. There are many planning opportunities available, but there are also some pitfalls, so it is crucial to take proper advice.
Life Assurance and Pension Policies
Straightforward inheritance tax planning opportunities are available for life assurance and pension policies. We can help you to review the arrangements you have in place to ensure that they are as tax-efficient as possible.
If you have any questions about estate planning or Inheritance planning, please don’t hesitate to get in touch
Call us on 0191 2522396