Since 1694, the UK government has had some form of taxation system at death. A previous Prime Minister (David Lloyd George) once proclaimed “the most convenient time to tax rich people is when they are dead”. Sadly with the rise of personal wealth and in particular house prices you no longer have to be “rich” to pay this tax.
Today, death taxation is referred to as inheritance tax and it brings additional planning opportunities into play. The easiest way to solve an inheritance tax problem is… spend it (or go SKI-ing – Spend the Kids Inheritance)! The problem is spending all your money may not be appropriate.
Essentially for a UK resident and domiciled person, inheritance tax is charged on your worldwide assets including property, money and possessions. Gifts made in the previous 7 years may also be included. The bigger the estate, the bigger the inheritance tax bill.
Firstly inter-spouse transfers are exempt. After that under current rules, every person has a “nil rate band”. Simply put this means the first £325,000 of an individual’s estate is taxed at 0% with the excess charged at 40%. However this is where the simplicity ends! In the case of a married couple, the surviving spouse may also inherit their nil rate band so assuming spouse 1 left everything to spouse 2, spouse 2 has an effective nil rate band of £650,000.
Where an estate leaves at least 10% to registered charities, the inheritance tax charge may be reduced from 40% to 36%.
There are some gift allowances excluded and up to date details can be found here: https://www.gov.uk/inheritance-tax/gifts
There are some further relief’s available for business’s and farms, up to date details can be found here: https://www.gov.uk/business-relief-inheritance-tax
From 06th April 2019, every person will also receive an additional nil rate band of £150,000 (rising to £175,000 by 2020-21) which may be used to offset the value of their home. However, they can only receive this additional allowance where the home is left to either children or grand-children of the deceased. Again this additional allowance can be transferred to any surviving spouse if unused meaning there may be up to £1million in an estate before inheritance tax is due.
At Financial Fortress, we are experts in inheritance tax planning and have the experience to mitigate it effectively. Remember tax avoidance is perfectly legal, it is tax evasion that is not. Your adviser will ask questions to understand your circumstances before forming a plan and making accurate recommendations. Inheritance tax is probably one of the easiest taxes to avoid as long as you begin at least 7 years before death. We may recommend a series of gifts or perhaps a more complex trust arrangement to maximise the value of your estate for loved ones. It is likely we will need to work with a solicitor to make the plans work, are happy to work with your own or recommend a partner firm if required.
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