Inheritance Tax (IHT) can take away 40% of the value of any assets you accumulate during your lifetime.
If you get it wrong, even something as apparently straightforward as the wording in your Will could cost your estate unnecessary thousands in extra tax.
The subject therefore merits serious consideration (and long before you start to think the matter may be urgent) , so call us!
In the meantime, there are a few pointers below which should help you get started:
1. Use IHT exemptions
Spouse Exemption – all outright gifts to spouses/civil partners domiciled in the UK are exempt from IHT, whether made during lifetime or on death. The spouse exemption is limited to £325,000 if the person making the gift is UK domiciled and the recipient is non-domiciled.
Charity exemption – all outright gifts to qualifying charities, whether made during your lifetime or on your death, are exempt from IHT, and a gift to charity can also reduce the IHT rate from 40% to 36% on the remainder of your chargeable estate.
Regular gifts out of surplus income -any regular gifts made out of ‘surplus’ income are exempt from IHT.
Annual Exemption – an individual can give away up to £3,000 each tax year. If some is not used or fully used in one tax year, the unused part may be carried forward for one tax year.
Small Gift Exemption – you can make gifts of £250 to any one individual each tax year. The number of individuals is unlimited.
Wedding and Civil Partnership Gifts – a parent may give £5,000, a grandparent £2,500, and anyone else may give £1,000 free of IHT as a wedding gift.
2. Use IHT reliefs
For those of you in business and/or agriculture there are some extremely valuable reliefs, which may means certain assets can be passed on completely tax free. These reliefs are purposefully designed by the government to make sure that your heirs can continue in a family business or farm without having to sell assets and pay large sums of tax before doing so, so take advantage.
3. Make lifetime gifts
Assets gifted during your lifetime, to individuals or into trust, have the effect of reducing the value of your Estate, provided you survive seven years from the date of the gift.
Gifts to individuals are ‘potentially exempt transfer’ (PETs), whilst gifts to trusts are ‘chargeable lifetime transfers’ (CLTs). If you survive either a PET or a CLT by 7 years your gifts become exempt from IHT.