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Ensuring your loved ones future

Estate Planning

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Inheritance Tax (IHT)

Inheritance Tax (IHT) is a tax paid on any money or assets (the estate) exceeding the relevant threshold at time of death, that a person leaves behind when they die. For the tax year 2017/18 the threshold is £325,000. The value of any assets below this amount will not be subject to IHT. Anything over the amount is subject to a 40%* deduction of IHT (*36% if more than 10% of the estate is left to charity).

Married couples and civil partners can pass assets to each other free of tax on death. They can also pass on any of their unused threshold to the surviving partner. An additional ‘nil-rate band’ will be applied to those leaving their main residence to direct descendants (***conditions and qualifying criteria apply). In 2018/19 this band is £125,000 and will increase in line with the CPI in subsequent years.

Minimising IHT and Reducing your Estate

A simple way of reducing your estate is to ‘gift’ your assets away, however, there are limits to the extent to which you can do this. Below is a list of the limits that apply to certain gifts for the tax year 2017/18:

  • Annual Exemption = £3,000 p.a (unused limits cannot be carried forward to the next tax year)
  • Small Gifts Exemption = £250 (as many as you like in a tax year as long as no other exemption has been used on that person)
  • Wedding Gifts:
    • £5,000 per child
    • £2,500 per grandchild
    • £1,000 to anyone else (e.g. friend)
  • Gifts to charities, national museums, universities, the National Trust, political parties and other institutions are exempt in full
  • Regular gifts from Income after Tax are fully exempt provided they fall within normal expenditure and do not impact their standard of living (see Regular Gifts from Normal Income Record right)

Other Ways of Reducing your IHT Liability

There are other mechanisms that can also be used to reduce your potential IHT liability such as:

  • Making a Potentially Exempt Transfer (PET)
  • Making a Chargeable Lifetime Transfer (CLT)
  • Gifting into a Trust
  • Tax efficient investments that offer benefit such as Business Property Relief (BPR) after 2 years
    • This list is not exhaustive. Please call us on 01872 306422 to book a free, non-obligatory appointment with one of advisers to discuss your circumstances in more detail.

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