Inheritance Tax (IHT) Planning
What is Inheritance Tax (IHT)?
Simply put, Inheritance Tax is the tax levied by HMRC on the estate of a deceased person. For the purposes of Inheritance Tax, an estate covers the deceased’s property and money, together with any of their possessions.
When is Inheritance Tax payable?
As a rule, you will not pay Inheritance Tax if:
- the value of your entire estate, not just the house you live in, is below the £325,000 threshold, or;
- you will also get an extra exemption of £325,000 on the death of a spouse if they have unused Nil rate band, and;
- additional reliefs may also be available such as the Residential Nil rate band, Business Property Relief (BPR) and Agricultural Property Relief (APR)
However, even if your estate is less than the current threshold and the estate is exempt from paying Inheritance Tax, it will still need to be reported to HMRC.
Inheritance Tax rates
The standard Inheritance Tax (IHT) rate is 40%. It is chargeable only on the portion of an estate above the IHT threshold.
Example: Your estate is valued at £450,000. Deducting the Inheritance Tax threshold rate of £325,000 leaves £125,000. Your Inheritance Tax will therefore be charged at 40% of £125,000 or £50,000.
You can pay a reduced rate of 36% IHT, however, if you leave more than 10% of your net value (the value of the estate less any debts) to a charity in your will. There are also certain reliefs and exemptions such as Taper Relief and Business Relief which, will have an impact on your net value.
As Inheritance Tax is complicated, it is crucial that you discuss your tax planning with an experienced tax advisor who can ensure that your legacy to your loved ones is optimised for the purposes of Inheritance Tax.
Inheritance Tax on Gifts
Your beneficiaries do not normally pay tax on things they inherit although, there may be associated tax implications if, for example, they later rent out a house left to them in a Will. They would need to pay Income tax on the rental income in this case. You may also be liable for Capital Gains Tax if you later sell a gift. You may also have to pay Income tax on any interest you earn on inherited money or on the dividends paid out any shares you inherit.
Normally a beneficiary will only have to pay IHT if:
- the deceased gave them a gift in the 7 years prior to their death.
- the inheritance has been put into a trust and the trust does not or is unable to pay.
It is possible to use allowances to make tax free gifts:
- Annual gifts allowance of £3,000
- Small gifts allowance of £250
- Gifts in recognition of marriage or civil partnerships
- Regular gifts out of income
Dealing with the complexity of Inheritance Tax
Inheritance Tax is a very complex subject and dealing with IHT issues, at a time of stress and grief, can be overwhelming for your loved ones.
How MFW can help with Inheritance Tax advice
At McCabe Ford Williams Chartered Accountants, we can assist you and your family with all the advice required for effective Inheritance Tax Planning. We will explain Inheritance Tax in plain English and be on hand to help to reduce stress for all concerned.
We can explain the best way to go about your Inheritance Tax planning so that you maximise on all the tax opportunities available to you and your beneficiaries.
It’s never too early to plan Inheritance Tax
Although not an easy matter to consider, if you wish to maximise provision for your family/beneficiaries, you do need to plan your affairs in advance. The sooner you plan, the more options and opportunities you have for IHT planning.
The earlier you make arrangements, the greater the chance of taking full advantage of the Inheritance Tax planning opportunities available. This will minimise the amount of money that is paid over to H M Revenue & Customs and reduce the burden on your loved ones.
Issues to consider
There are many issues to consider when planning to transfer your estate. In your Inheritance Tax planning you will need to ensure that you strike the right balance between maximising tax savings and making adequate provision for yourself and your family during later life.
Our Inheritance Tax Services
We can help you:
- Review the terms of your will
- Utilise exemptions and lower tax rates on lifetime transfers of assets including transfers between spouses
- Transfer a business (including shares in family companies) or an agricultural property
- Transfer assets into trusts
Contact us for more Inheritance Tax Advice
For more help with Inheritance Tax and Inheritance Tax planning contact your local MFW office.
We offer a free initial, confidential and no obligation consultation, which can be booked directly with our offices by telephone or, by completing our online contact form.
In the meantime, you could look at some of our blogs on IHT :
We also have a full range of probate services we provide for you and your family.