Inheritance Tax Planning

Inheritance Tax (IHT) is a tax on the estate (the property, money, and possessions) of someone who has died. In the UK, IHT is charged at 40% on the value of the estate above the nil-rate band, which is currently £325,000 (as of 2024).

Inheritance Tax is typically payable within six months of the end of the month in which the deceased person passed away. If the tax isn’t paid by this deadline, interest may be charged on the outstanding amount. In some cases, such as when the estate includes property, the tax can be paid in instalments over 10 years.

The responsibility for paying Inheritance Tax falls to the estate’s executor or administrator. They must use the estate’s assets to pay any IHT due before distributing the remaining assets to the beneficiaries.

Yes, several exemptions and reliefs can reduce the IHT liability, including:
• Spousal Exemption: Transfers between spouses or civil partners are generally exempt from IHT.
• Charitable Donations: Gifts to qualifying charities are exempt from IHT and can reduce the overall rate of tax on the estate.
• Annual Exemption: You can give away £3,000 worth of gifts each tax year without them being added to the value of your estate.
• Small Gifts Exemption: You can give gifts of up to £250 to any number of people each tax year.
• Business and Agricultural Relief: Reliefs are available for business assets and agricultural property, potentially reducing the taxable value of these assets.

Yes, making gifts during your lifetime can reduce the value of your estate and potentially reduce the IHT payable. Gifts made more than seven years before your death are generally exempt from IHT, provided no benefit is retained from the gift. There are also exemptions for certain smaller gifts and regular gifts from income.

The nil-rate band is the threshold below which no Inheritance Tax is payable, currently set at £325,000. The residence nil-rate band (RNRB) is an additional allowance available when passing on a home to direct descendants (children or grandchildren). As of 2024, the RNRB is up to £175,000. The nil-rate band and RNRB can be combined, potentially increasing the tax-free allowance to £500,000 per individual.

Potentially Exempt Transfers (PETs) are gifts made during a person’s lifetime that become exempt from IHT if the giver survives for seven years after making the gift. If the giver dies within seven years, the gifts may become subject to IHT, with taper relief potentially reducing the tax due.

A trust is a legal arrangement where assets are managed by trustees for the benefit of beneficiaries. Trusts can be used in inheritance tax planning to manage and protect assets, control how and when beneficiaries receive their inheritance, and potentially reduce the estate’s IHT liability. There are various types of trusts, each with specific rules and tax implications.

Business owners can benefit from Business Relief (BR), which can reduce the IHT value of business assets by up to 100%. This relief applies to qualifying business assets, including shares in private companies, land, buildings, machinery, and unlisted shares. Proper planning can ensure that the business remains intact and passes smoothly to the next generation.

Yes, it’s important to update your will regularly, especially after major life events such as marriage, the birth of children, or significant changes in your financial situation. Keeping your will current ensures that it accurately reflects your wishes and takes advantage of the latest tax reliefs and allowances.

To start planning for Inheritance Tax, consult with a qualified financial advisor or estate planner. They can help assess your estate, explain the various reliefs and exemptions available, and create a comprehensive plan tailored to your unique circumstances. Contact us today to schedule a consultation and take the first step toward securing your family’s financial future.