Inheritance Tax

Inheritance Tax (IHT) is paid on all estates over a certain tax-exempt amount known as the ‘nil rate band’. The current nil rate band is £325,000 per individual and will be maintained at this level until at least April 2023. IHT is payable on all assets above the nil rate band at a rate of 40%.

It was Benjamin Franklin who famously stated:

The only certainties in life are death and taxes

In fact in the case of IHT this is not entirely true and it was Lord Jenkins who stated:

Inheritance Tax is a voluntary tax, paid by those who distrust their heirs more than they dislike the Inland Revenue

Inheritance tax has affected a growing number of people in the UK, mainly because IHT thresholds have not risen in line with house prices. This means that it no longer affects only the wealthy, and can quite easily affect people with relatively modest means.

On death the tax is paid by the executors of your estate, from your remaining assets. This means that your loved ones can be left with a significant tax bill if you do not plan ahead. It is worth noting that any tax bill must be paid before any assets from the estate can be released.

Fortunately, with the IHT mitigation opportunities currently available, it should be possible to reduce or even entirely eliminate your IHT liability. The main strategies for minimising IHT are:

  • For married couples to share their wealth, as gifts between husband and wife are tax-free, and each can leave up to the nil rate band without paying IHT.
  • Set up trusts to pass on capital to children or grandchildren. Get expert tax and legal advice first.
  • Have your existing insurance policies written in trust to avoid them being classed as part of your estate.
  • Set up a separate life insurance policy in trust to cover any potential IHT bills your heirs might have to pay.
  • Leave some money to charity, to institutions such as the National Trust, or even to a political party. Such gifts are completely tax-free, whether you make them during your life or as bequests in your will.
  • Give away your money during your lifetime, either outright or by putting it into trust.
  • Give away £3,000 per annum – there is an annual allowance per donor of £3,000.
  • Give £5,000 to a child on their wedding.
  • Give £2,500 to a grandchild on their wedding.
  • Make ‘regular and habitual’ gifts out of income as these are also tax free.

Rosan Helmsley are happy to review all your financial planning in respect of inheritance tax and our attached Key Guide sets out all the current exemptions and relevant factors to consider around inheritance tax and Will planning.

Estate Planning

Estate Planning 17