Inheritance Tax affects many people and is an area of tax that requires constant review, even if you have already made plans. Our tax advisors can help ensure the wealth you create benefits not only you, but those whom you would wish to pass it on to. Planning for the future as early as possible is essential to minimise potentially significant Inheritance Tax liabilities.
Our specialist tax team can assist you with this planning, either as part of an overall tax planning strategy, or purely to help you plan how to pass on your wealth so your loved ones can make the most out of your assets, wealth and property.
Expert planning and tax advice are essential to make sure your estate is structured efficiently from an inheritance tax (IHT) point of view. This is of particular importance if you also own a business or have foreign assets.
Inheritance Tax advice
Inheritance Tax is a fast-paced, complex area of tax, which is constantly changing. It is not enough to put one plan in place and leave it. To be effective, any Inheritance Tax plan should be kept under constant review, to ensure it is up-to-date and remains compliant and effective, utilising all available reliefs, which frequently change.
Inheritance Tax can affect other areas of taxation including property, family wealth, probate and trusts. As such a holistic approach to your tax planning will ensure that all areas are considered and comprehensive strategies are implemented to protect you and your assets.
As part of any Inheritance Tax plans, having an up to date will and making sure this is regularly reviewed is essential. We can advise on the tax implications of any wills.
Our expert tax team can review your current situation and put in place a comprehensive Inheritance Tax strategy. We can also liaise with our trusted specialist partners, including lawyers and independent financial advisors to ensure you are covered for every eventuality.
Our expert team of Inheritance Tax advisors regularly advise clients on the following areas:
- Inheritance Tax planning and estate planning
- Transferring tax-free allowances to spouses
- International and non-domicile inheritance tax
- International tax thresholds for unmarried couples
- Inheritance tax return filing
- Lifetime gifts and potentially exempt transfers (PETs)
- Charitable donations
- Setting up Trusts and transferring assets
- Transferring a business (this can include shares in a family company) or transferring agricultural property
- Appealing Inheritance Tax decisions with HMRC or at Tax Tribunal
- Ensuring wills are structured in a tax efficient manner
- Advising on utilising exemptions and lower tax rates on lifetime transfers of assets (which includes transfers between spouses)
We are also able to provide expert advice on the wider issues of wills and financial advice relating to inheritance tax through our network of trusted partners.
What is the Inheritance Tax Threshold?
The current Inheritance Tax threshold for the tax year 2020/21 is £325,000. This is the amount of your estate that is normally exempt from Inheritance Tax.
It will rise with inflation after the 2020/21 tax year.
What is the Inheritance Tax nil rate band?
The nil rate band (NRB) is also known as the inheritance tax threshold, as above. Generally, all UK residents benefit from the nil rate band.
A residence nil rate band also came into existence on 6 April 2017.
This may be available in addition to the nil rate band when you pass on your main residential residence to your spouse. For the tax year 2020/21 it increased to £175,000. This can offer significant tax savings, but it can be complicated to calculate.
To take advantage of the residential nil rate band, a property must be passed on to direct descendants such as children or grandchildren. A discretionary trust cannot be used to pass on the home, however certain other types of trust do qualify. Many people use Discretionary trusts in their wills, so it is important to review this and consider if the additional residential nil rate band will be used.
For estates valued over £2m, the residence nil rate band is tapered down. For every £2 that an estate is valued above £2 million, the residence nil rate band is reduced by £1.
Inheritance Tax Calculator
It is rarely straightforward to calculate your inheritance tax liability automatically or using an inheritance calculator effectively. There are many different reliefs and exemptions available that may apply, dependent upon individual circumstances.
You can contact our specialist Inheritance Tax Advisors for further information, who will be able to discuss how our comprehensive inheritance tax planning review could benefit you in helping to minimise your inheritance tax liability, as well as reviewing your wider current tax position. This will help to ensure you are only playing the correct amount of tax that you ought to.
Inheritance Tax on Property
The inheritance tax due on property will depend upon whether it was the deceased main residence, and their relationship with the beneficiary.
A home can be passed on to a spouse or a civil partner upon death. There is no Inheritance Tax to pay in this instance.
If a home is left to anyone else, it counts towards the value of an estate. For those who own a home, or a share of a home, your tax-free threshold can increase to £500,000 when you leave it to your children, where the value of the estate is £2 million or less (the residential nil rate band)
If you move out and give your home away at least 7 years before your death, there is usually no Inheritance Tax to pay, although you may be liable for other taxes, such as Capital Gains Tax.
If you give away a property at least 7 years before death and continue to live in it, you will need to pay market rent and your share of the bills, or this will still count as part of your estate and may be liable for Inheritance tax.
Capital Gains Tax may be payable when an inherited property is sold if it has not been the recipients’ main residence.
Inheritance Tax and gifts
Inheritance Tax is not normally paid on small gifts, from your income (these are known as exempted gifts, to which you can give away up to £3,000 in each tax year). There is also no Inheritance Tax to pay on gifts between spouses and civil partners.
As well as exempted gifts, you can give away certain monies as wedding or civil ceremony gifts, normal gifts from income, such as birthday and Christmas gifts. There are other circumstances where you can also give a gift away without being liable for Inheritance tax, our tax advisors are able to explain these in more detail.
Gifts other than these count towards the value of your estate, so it is important to factor in any larger or other gifts that you have given as part of your Inheritance Tax planning. If you give away more than £325,000 in gifts in the 7 years before your death, the recipients will be charged inheritance tax above this amount.
A 7 year rule applies to gifts given within 7 years of your death. Where there is Inheritance Tax to pay, it is charged at 40% on the 3 years before death or at tapering amount up to 7 years before death.
Other taxes may also need to be paid on certain items given away longer than 7 years before death, such as a property that was not your main residence, where capital gain tax would be due by you. Careful tax planning will ensure that you fully consider the impacts of all taxes that may arise, not only Inheritance Tax.
Inheritance Tax and pensions
Tax, including Inheritance Tax, may have to be paid on payments you receive from someone else’s pension pot, following their death.
State pensions have different rules (and the ability to pass these on is much more limited).
Usually, the deceased would have to nominate you. Pensions from a defined benefit pot are usually only paid to a dependent, such as a spouse, husband, wife or civil partner (or a child under 23). If a pension scheme’s rules allow it, it can be paid to someone else, however it will be taxed at up to 55%.
Inheritance Tax and businesses
If you own, or have shares in a business, it is particularly important to understand the inheritance tax implications of this. Additionally, there may also be implications with succession planning, and who is going to control the business in the future. This is particularly important for family-owned businesses and an area of tax and accountancy that we specialise in.
Business Relief is usually available when inheriting business assets. It is available at 100% for a business (or interest in a business) or for shares in an unlisted company.
You can also get 50% business relief on the following:
- For a listed company – shares controlling more than 50% of the voting rights
- Where the deceased was a partner or controlled a business, and used land, buildings or machinery that they owned, if this is inherited.
- Buildings, land or machinery used in the business and held within a trust that has the right to benefit from it.
To get relief, the deceased would need to have owned the assets for at least 2 years before they died.
There are many items you cannot claim business relief on, our specialist tax advisors can explain these in greater detail.
Business Relief may also be available on a transfer of agricultural property (e.g. farmland, farm equipment or farm buildings) which are not eligible for agricultural relief. (if it is eligible for Agricultural Relief, it will not be eligible for Business Relief)
Under certain circumstances, Agricultural Relief allows some agricultural properties to be inherited free of Inheritance Tax, either during the owner’s lifetime or as part of their will.
How to avoid Inheritance tax
You cannot avoid paying Inheritance if it is due, but with expert Inheritance tax planning it can be minimised, or even reduced to zero, through implementing tax efficient measures as early as possible, before it becomes due.
If you are faced with an Inheritance Tax bill from the death of a relative, it is always important in obtaining professional tax advice, to ensure all that all exemptions and allowances are calculated correctly.
Inheritance Tax planning
It is never too early to start planning for Inheritance tax. In fact, the earlier you do this, the greater the chance of taking full advantage of Inheritance Tax planning opportunities available to you.
There are several ways in which Inheritance Tax planning at an early stage can assist. Creating or reorganising wills and trusts is one way in which planning can help, making sure that these take advantage of reliefs and are structured to be as tax efficient as possible. Giving gifts throughout your lifetime is also a tax effective way of minimising future liability.
As Inheritance Tax crosses over into other areas of taxation, Inheritance Tax planning can, in many situations also help lower your overall tax liability, each year.
Contact our Inheritance Tax Accountants
Please contact a member of our specialist Inheritance Tax team today to discuss the ways in which we can assist you. You can call us directly on 0161 832 4841, fill out a contact form or simply email firstname.lastname@example.org and a member of our team will be in touch promptly.
Whilst this is sometimes not an easy subject area to discuss, early intervention will help to minimise the amount of money (if any) that is paid to HMRC, allowing you to provide better for those closest to you.
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