If you have an estate with a value in excess of £325,000 (which is quite easy with the increase in house prices in recent years), inheritance tax is potentially payable on the value of your estate above this. Inheritance tax can seriously affect how much your loved ones will benefit and, if your wealth is in illiquid assets, this can result in the sale of property to fund the tax.
Additionally, if your estate is worth less than £2 million, you may be also able to claim a further resident nil rate band of up to £175,000, or the value of your home, if lower, provided certain conditions are met.
The good news is that there is much that can be done to reduce the impact of inheritance tax.
You cannot reserve a benefit from any lifetime gifts that you make. For example, you cannot give away shares in a business you own, but still enjoy the dividends that arise from them. Common types of lifetimes gifts are houses, shares or cash. If you survive for a period of 7 years after making the gift, the gift is not included within the value of your estate upon death. In the event you die earlier, but more than three years after the gift is made, there are reductions in the rate of inheritance tax that is paid.
The exception is a lifetime gift into a trust, which may incur half the normal rates of tax (20%).
One way of passing your assets effectively onto a future generation is by creating a trust. We are experts in setting up and administering trusts, along with advising settlors and beneficiaries on the tax issues arising from the trust.
There are some additional reliefs for smaller gifts that can be made, including:
- £3,000 annual allowance
- Small gift exemption – up to £250 per recipient
- Gifts in consideration of marriage – up to £5,000
- Habitual gifts out of surplus income
- Gifts to charity
We take care to make sure we are kept abreast of your current circumstances and objectives. In this way we are able to provide you with the services and advice that are appropriate to your present situation and plans for the future. Please contact one of our experts below to find out how we can help you.