Estate Matters BLOGFebruary 18, 2016 4:07 pm
Estate Maggers: Structuring your affairs efficiently means starting the correct planning early enough
Inheritance Tax (IHT) is payable by some people that, for the most part, could have been avoided.
If you want your estate to go to your loved ones with the minimum amount of IHT payable, you
should obtain professional advice. There are currently a number of generous reliefs relating to IHT.
Indeed, if the correct planning is started early enough, it may be possible to avoid IHT altogether.
New main residence transferable nil-rate band
From 6 April 2017, there will be a new main residence transferable nil-rate band (family home
allowance) that will apply when a main residence is passed on to a direct descendant. This new
main residence transferable nil-rate band will work alongside the existing IHT nil-rate band, which
is currently £325,000. In the same way as with the current nil-rate band, any unused main
residence transferable nil-rate band will be transferred to a surviving spouse or registered civil
A property which was never a residence of the deceased, such as a buy-to-let property, will not
qualify. The allowance will initially be set at £100,000 in 2017/18, increasing to £125,000 in
2018/19, £150,000 in 2019/20 and up to £175,000 in 2020/21 (and then increase each year in line
with inflation [CPI]).
Inherited from a spouse
It is possible therefore that by 2020/21, an individual will have their own nil-rate band of £325,000
as well as a main residence transferable nil-rate band of £175,000 in respect of their main
residence, plus a nil-rate band of £325,000 inherited from their spouse and a main residence
transferable nil-rate band of £175,000 inherited from their spouse.
This gives the much advertised total of £1 million. It is worth noting that the current nil-rate band of
£325,000 is now set to remain until 2020/21. There is also going to be a tapered withdrawal of the
main residence transferable nil-rate band for estates worth more than £2 million.
Effect of the proposed changes
Few taxes are quite as emotive – or as politicised – as IHT. The structures into which you
transfer your assets can have lasting consequences for you and your family. The
current rate of IHT payable is 40% on property, money and possessions above the nil-rate
band. The rate may be reduced to 36% if 10% or more of the estate is left to charity.
It makes sense to ensure that your affairs are structured in the most tax-efficient way
possible. However, it isn’t easy to keep up with the many exemptions and reliefs available.
So what should you consider?
Lifetime gifts to individuals are potentially exempt transfers and fall outside the scope of IHT,
provided the donor survives at least seven years from the date of the gift.
Trusts can sometimes help you to eliminate unnecessary tax charges, enabling the maximum
possible part of your family’s wealth to be preserved. You may like to transfer part of your wealth to
a family member but still retain control; our specialists can advise on setting up trusts and can take
care of all the administration.
One important way to minimise IHT is to make a Will, so as to leave your family with the maximum
assets and at the least tax cost.
Business and corporate structures
If you have a business, it is also important to examine the structure of your business when
considering your affairs. Changing the structure of a business can have significant tax implications.
Enjoy special concessions
The treatment for IHT purposes is more favourable for some assets than others. Business assets
and shares in unquoted companies, agricultural land and works of art, for example, all benefit from
special concessions which may assist in passing wealth from one generation to the next.
Making gifts for charitable purposes can be highly effective in potentially reducing an IHT charge
Are your needs fully considered?
Without the right advice and careful financial planning, HM Revenue & Customs could become the
single largest beneficiary of your estate following your death, which is why you should obtain
professional financial advice to ensure your needs are fully considered. To review your situation,
please contact us.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION
LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM,
TAXATION ARE SUBJECT TO CHANGE.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE WILL WRITING,
INHERITANCE TAX PLANNING OR TAXATION ADVICE.