Man­ag­ing in­her­i­tance tax li­a­bil­i­ties

For those who may be af­fected by a fu­ture in­her­i­tance tax li­a­bil­ity, good es­tate plan­ning can be im­por­tant. Carl Lamb ex­plains

EDP Norfolk - - YOUR MONEY -

If you own your own home and have built up sig­nif­i­cant wealth through ju­di­cious sav­ings and in­vest­ments, then you may have con­cerns about the im­pact that in­her­i­tance tax (IHT) may have on the es­tate that you leave for your heirs.

Ev­ery in­di­vid­ual has an IHT-free al­lowance of £325,000, known as the nil rate band (NRB). If you are mar­ried or in a civil part­ner­ship, you can leave as much of your es­tate as you like to your part­ner without in­cur­ring an IHT charge (but not if you are a co­hab­itee).

If you leave some or all your es­tate to some­one other than your spouse or civil part­ner, then that part of your es­tate will count to­wards your NRB and any­thing over the al­lowance will be sub­ject to a 40% IHT charge.

If you have any un­used NRB on your death you can pass it on to your spouse or civil part­ner, so the sur­viv­ing spouse/civil part­ner can po­ten­tially amass a com­bined NRB of up to £650,000.

There is a fur­ther IHT al­lowance for any­one who is pass­ing their main res­i­dence (or its value) on to their di­rect de­scen­dants (chil­dren and grand­chil­dren). De­pend­ing on the value of the prop­erty, this could give an ad­di­tional NRB of up to £125,000 to an in­di­vid­ual who dies in the 2018/19 tax year – and is due to go up to £175,000 by 2020/21. If un­used, this el­e­ment can also be passed on to a spouse/civil part­ner on death, giv­ing a to­tal po­ten­tial com­bined NRB for a qual­i­fy­ing cou­ple of £1 mil­lion in 2020/21.

If your es­tate will ex­ceed the rel­e­vant NRB, there are mea­sures that you can em­ploy to mit­i­gate a po­ten­tial fu­ture IHT charge, in­clud­ing life­time gifts.

There are an­nual IHT ex­emp­tions for gifts: you can give up to a to­tal of £3,000 per year without im­pact­ing your NRB, plus up to £250 per year to as many in­di­vid­u­als as you like. Gifts to char­i­ties (and po­lit­i­cal par­ties) are also ex­empt from IHT. Wed­ding gifts are IHTex­empt too, up to spec­i­fied lim­its.

In ad­di­tion, you can es­tab­lish a pat­tern of reg­u­lar giv­ing from sur­plus in­come (not from in­vest­ments or by sell­ing as­sets) that can po­ten­tially be con­sid­ered ex­empt. Do get ad­vice if you would like to take ad­van­tage of the lat­ter as it must be prop­erly set up and doc­u­mented to qual­ify for the ex­emp­tion.

If you make gifts that don’t qual­ify for the above ex­emp­tions, then some or all of it may be in­cluded in your es­tate for IHT pur­poses if you die within seven years of mak­ing the gift.

Good plan­ning through­out your life­time can help to en­sure that the value of your es­tate is man­aged to keep your fu­ture IHT li­a­bil­ity un­der con­trol.

This ar­ti­cle is based on our un­der­stand­ing of cur­rent tax rules which are sub­ject to change. For in­de­pen­dent ad­vice, con­tact Al­mary Green on 01603 706740 or email en­quiries@al­mary­green.com. Please re­mem­ber that the guid­ance here is generic and we rec­om­mend that you get in­di­vid­ual per­son­alised ad­vice. al­mary­green.com

You don’t want to take a hit on IHT

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