Inheritance Tax Planning | Independent, Chartered Financial Planners in Berkshire

Helping People Make Good Life Decisions

I AM A CHARTERED, INDEPENDENT FINANCIAL ADVISER WITH 25 YEARS OF EXPERIENCE. I HAVE NO LINKS TO ANY NETWORK OR FINANCIAL INSTITUTION. I WORK SOLEY IN MY CLIENTS’ BEST INTERESTS. I FIND THE MOST SUITABLE SOLUTIONS FOR MY CLIENTS FROM THE WHOLE OF THE MARKET AND ENSURE MY RECOMMENDATIONS REMAIN SUITABLE ON AN ONGOING BASIS.

Do you need to plan for a potential Inheritance Tax on death?

If the value of your estate is in excess of £325,000 (Nil Rate Band or NRB) then potentially yes. There is now a Residential Nil Rate Band (RNRB) too, where, initially, the RNRB was set at £175,000 in April 2020. Just like the standard Nil Rate Band, any unused RNRB on the first death of a married couple or civil partners has the potential to be transferable even if the first death occurred before 6 April 2017.

However, the RNRB does come with conditions attached and so may not be available – or available in full – to everyone.

Can I make gifts in life which will be exempt from Inheritance Tax (IHT)?

Yes some gifts made in life, will be entirely exempt from IHT, but, not all. If you live for seven years after making the gift, it may be exempt from IHT on death or second death.

How much tax will my Estate have to pay when I die?

On death, IHT is payable from a person’s estate, typically after probate has been granted, however, if trusts are used probate can, in some cases, be avoided.

IHT is payable at 40% over and above the NRB and RNRB. Gifts made in life are subject to different rules.

Things to consider when planning to give a financial legacy

• Is the value of your estate going to be subject to IHT?
• Do you want control over how your assets are distributed to loved ones and beneficiaries, even from the grave?
• Would you like to protect assets against creditors and bankruptcy?
• Are you really happy for your estate to be subject to IHT many times over? This is called generational IHT and can be managed in a simple way by using trusts.
• Are you concerned if your spouse remarries after your death and what might happen to the estate you built up in life together? i.e. Could your intended beneficiaries be deprived of their inheritance?
• What happens if you pass on assets to your children and they get divorced. Half of the estate you worked so hard to provide your children with could be taken.
• Do you own a business?
• How much tax do you need to pay? If you don’t take advice you won’t know!

Are you a business owner?

If yes, your business could qualify for BPR or Business Property Relief, i.e. your business could be passed on with no IHT being paid. Assets owned personally but used by a partnership attracts a different rate of relief at 50%

If you own a business you will likely need a business clause in your Will to direct assets in line with your wishes accordingly.

The basics of managing an IHT liability

• Gifting in life is one of the tools used to manage a first generation IHT liability but you must start planning early.
• Use of Trusts. Trusts have many uses, but, they can will likely add complexity. If using trusts it is important that your beneficiaries are clued in to the planning you have set-up. It is also advisable to use professional trustees and a professional executor.
• Life assurance policies. These can be used to cover an potential IHT bill. Life policies should be assigned to trust, but, again rules are complex here and it is advisable to use a professional trustee.

Next steps ..

You’ve paid the tax man all your life and you will probably have to pay him again when you die, so, why not ensure that you are not over paying tax that you needn’t.

If you are local get in touch to discuss your personal and business tax requirements.