Inheritance Tax Planning

Inheritance Tax is a major concern for many people. If your estate is worth more than £325,000 when you die your family may have to pay Inheritance Tax. Many homeowners in Warwickshire have an Inheritance Tax problem just because of the value of their houses.

No Inheritance Tax is payable on assets you leave to your spouse, civil partner or a charity. Assets left to anyone else, including children or a partner could be taxed at 40% on the value over £325,000. This Inheritance Tax threshold of £325,000 can be doubled if the first spouse or civil partner has died leaving all of his or her estate to the survivor. This means that on the second death £650,000 will be exempt from Inheritance Tax.

In addition to this, your estate may benefit from the new Residence Nil Rate Band. This applies when you leave your home to children or grandchildren. It came into force in 2017-18 when it was worth £100,000 and will rise each tax year until 2020-21 when it reaches £175,000. This tax-free amount can also be doubled as above. Care must be taken as this relief is not available for larger estate values but there are occasions where planning can help secure some of the allowance. This means that if you and your spouse/civil partner are able to utilise both full allowances, no Inheritance Tax will be payable unless your estate exceeds £1 million. It is essential that you review your existing planning to ensure the rules associated with this allowance have been taken into consideration.

If you are business owner there are number of valuable reliefs available to you that you may not have considered. There are also specific reliefs for the farming community and others; if estate planning is undertaken correctly this can result in significant tax savings.

At Dixon Alderton Law we can look at your individual circumstances and advise on the Inheritance Tax allowances and any issues which may affect their availability, for example, any gifts you have made in your lifetime etc.

Lifetime Gifts

Making gifts in your lifetime can be a clever way of reducing your taxable estate, and can be achieved in various ways, for example:

• You can give away £3,000 in any tax year without incurring any Inheritance Tax liability (and any unused annual exemption can be carried forward to the next year – but only for one year)
• Wedding or civil ceremony gifts of up to £1,000 per person, £2,500 for a grandchild or great-grandchild and £5,000 for a child
• Small gifts up to £250 per person
• Normal gifts out of income (provided that you are able to maintain your standard of living after making the gift) – this is often overlooked and our work with many clients has helped them identify how this allowance can help
• Gifts to charities and political parties

On the face of it these are pretty straightforward but making sure your family members know how and when to claim them is extremely important. There are more complex reliefs that we can help you identify if relevant and then provide planning to optimise their value to you.

For advice on how you can reduce your Inheritance Tax bill, please contact us.