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Advice for clients in later life
Plan to reduce your IHT burden
Despite the threshold rising to £650,000 for married couples and civil partners (£325,000 for individuals), the boost in house prices over recent years means inheritance tax (IHT) is still a concern for many homeowners, particularly in the South East. It is therefore sensible to consider the potential liability you may be leaving behind.
Before you look to offset it, however, it is important to sort out what will accumulate as a potential liability. For most the key contributor to their estate will be the value of their home but, even if this lies below the threshold, there are other elements that can push an estate over the limit. For example, while people typically talk of the benefits of ISA investing, although it shelters investors from capital gains and income tax, it does not shelter the value from IHT. Another example is that any property held abroad also goes towards the value of an estate. Both are therefore susceptible to inheritance tax.
See what your Inheritance tax bill might be with our IHT Tax Calculator
The problem with this tax is not just the fact it has to be paid, but also that it has to be paid quickly – generally within 6 months. Passing on your home or other heirlooms intact could therefore be compromised as, without planning, some may need to be sold to meet the bill.
However, there are things you can do, particularly if your liability is relatively small. Few people realise that they have an annual exempted amount that they can gift to someone. At £3,000 per year this could go some way to reducing the overall estate. Gifts for weddings, from parents, grandparents and even friends, are also exempt (subject to varying maximum amounts) and there are other useful tools such as loan trusts and discounted gift schemes.
GIFTS
Gifts are one of the most common methods use to reduce or avoid exposure to inheritance tax. The following point's could be considered:
a) All gifts made more than seven years before your death are exempt! Forward planning can therefore assist greatly.
b) Gifts to your husband or wife are exempt.
c) Gifts of up to £3,000 in any one tax year are exempt
d) Wedding gifts are exept up to the following value: children £5,000; grandchildren £2,500; anyone else £1,000.
e) Gifts that are part of your normal expenditure and made out of your income are exempt.
f) Gifts to UK based charities, museums and similar other bodies.
The new exemption on business assets is also an interesting development. As long as the assets are held for more than two years, they should be seen as IHT-free and this includes shares in the smaller companies stock market, AIM (although, do note that these stock can carry higher risk and should not be held purely tax for reasons). Added to this, there are partially-exempt trust structures.
As the Government looks to close any potential tax loopholes it is worth getting advice on what can and cannot be done to ease potential IHT burdens.
*Please note that some aspects of Inheritance Tax Planning are not regulated by the Financial Service Authority e.g. Will Writing, Tax Advice, Property Sales