How to save Inheritance Tax

Will enquiries have increased by more than 70 per cent in recent weeks as a result of the Coronavirus Pandemic, according to industry sources.*

In these uncertain times, it’s understandable that more people are getting their affairs in order and whilst having an up to date Will in place is a vital part of this, there are also ways you can plan ahead to maximise the amount of wealth that you’re able to pass on.

Record Inheritance Tax

Inheritance Tax (IHT) receipts hit a record £5.36bn in 2019. The amount of IHT collected by HMRC is increasing year on year and it’s affecting more people than ever before. This is hardly surprising given the increase in property values over the last decade, coupled with the fact that the standard nil rate band has remained static. The introduction of the main home nil rate band has begun to take effect, but unsurprisingly, does little to halt the increase in revenues. In view of this, it’s important to consider your position and plan ahead to ensure that your estate is as efficient as possible.

Our top five tips

  1. Make sure you utilise nil rate bands fully - careful planning is required around the availability of the standard nil rate band (£325,000) and the main residence nil rate band (£175,000). The structure of the legislation, particularly around transferability of unused bands and the additional main residence nil rate band, is complex and therefore, it is essential to seek advice to ensure valuable allowances are not lost.
  2. Making use of available exemptions- the most straightforward and simple way to plan for Inheritance Tax is to make use of the available exemptions. The following gifts can be made free of Inheritance Tax:
    • Small gifts to the same person up to £250 in any tax year. These can be made to as many people as you wish.
    • Gifts in consideration of marriage or civil partnership. The exemption limits are £5,000 made by a parent, £2,500 by a grandparent and £1,000 by anyone else.
    • The first £3,000 of gifts made in any tax year. This is known as the Annual Allowance and there is an added element in that any unused allowance from the previous tax year can be added to your allowance for the current year, resulting in a £6,000 exemption.
  3. Make gifts out of surplus income - Gifts out of income can be made free of Inheritance Tax. To qualify, the gift must be part of your normal expenditure and, taking one year with another, made from surplus income so that your current standard of living is maintained. Records should be kept in support of any claim.
  4. Ensure your business and its assets qualify for business property relief - Business property relief can automatically exempt (or partially exempt) the value of your own business or value of business assets you own when you die. As the relief is very generous, it is an area that is scrutinised constantly by HMRC. The legislation is complex and detailed conditions apply. Therefore, it is highly recommended that your business and business assets are reviewed to ensure they are structured efficiently for Inheritance Tax purposes.
  5. Use of Trusts - the use of Trusts can be an efficient way to protect and control family assets and, if planned properly, can also be efficient for Inheritance Tax purposes.

To find out more about our Inheritance Tax review service, please see http://www.richardsonswift.co.uk/our-services/inheritance-tax/, or contact Calvin Healy on 01225 325580 or email ch@richardsonswift.co.uk.

Please note that this is only a summary of the main issues and should not be construed as advice. Every effort has been made to ensure factual accuracy at the time of publication (17 April 2020), however, the government response to the Coronavirus situation is changing 24-7, so it should not be relied upon completely.

*Source: BBC News