The second in our short series of Tax Tips looks at Inheritance Tax
Inheritance Tax is payable at 40% on death on an individual’s chargeable estate over the available Nil Rate Band and Residential Nil Rate Band.
The Nil Rate Band is currently £325,000, and the Residential Nil Rate Band is £175,000 with any unused percentage of either transferrable to the surviving spouse to potentially be used on the second death.
Whilst the Nil Rate Band is available to everyone, the Residential Nil Rate Band is only available when a residence is left to direct descendants in your Will and your Net Estate (assets less liabilities at date of death) is less that £2m (£1 of RNRB is lost for every £2 over £2m).
There are a number of rules around gifts in lifetime that are considered part of your chargeable estate on death, various potential reliefs available such as transfers between spouse, gifts to Charity/ Agricultural Property Relief and Business Property Relief.
Possible action points to reduce your Inheritance Tax liability:
- Make use of relief available for gifts in lifetime such as Annual Exemption, Small Gifts Exemption, Wedding gifts
- If you have any excess income, make use of relief for Normal Expenditure out of Income, and make gifts each year free of IHT
- If possible pass assets out of your estate to bring the value below £2m in relation to the availability of the Residential Nil Rate Band.
- If making significant lifetime gifts, consider the order of the gifts -should Chargeable lifetime transfers be made before potentially exempt transfers – should gifts be made to individuals outright or in trust/ Family Investment Company.
- Update your Will, draft a Letter of Wishes and appoint a Power of Attorney
- Switch assets such as cash for assets that qualify for Agricultural or Business Property Relief
- Consider making Charitable Donations in your will. Charitable donations are exempt and if you leave more than 10% of your net estate to charity, IHT falls to 36%.
- Pass on your pension pot IHT free.
These are just some of the areas where we can provide advice on ways to minimize your tax bill. To talk about your own Tax Planning contact Angela Keery, Head of Tax E: firstname.lastname@example.org or Tel: 028 9032 3466.
Information contained in this article may not be comprehensive and should not be acted upon without seeking professional advice. This article does not constitute investment advice and advice should be sought from a suitably qualified investment adviser.