"In this world nothing can be said to be certain, except death and taxes."
Inheritance Tax Advice is a website which aims to put people in touch with Independent Financial Advisers, Solicitors and Estate Tax specialists, so they can discuss their financial objectives and reduce their Inheritance Tax liability where possible. We only work with suitably qualified professionals, many of whom have achieved the highest Chartered qualifications.
We have a network of professionals across the country, able to offer independent and comprehensive planning solutions which would look to mitigate an inheritance tax bill and therefore save a family having to pay thousands of pounds or possibly having to sell a family home unnecessarily.
When considering an inheritance tax planning solution, various factors should be taken into account. For example, if you were to set up a Trust then it is vitally important to assess what access to income and capital would be needed. If a strategy is not set up correctly then your estate may still be liable to a large tax bill so it is very important to make sure you take appropriate advice from suitably qualified professionals.
What is Inheritance Tax and when would it be due?
Inheritance Tax (also known as Estate Tax) is a charge of 40% applied to the value of an estate in excess of the available nil rate band' (currently set at £325,000 per person until 2014). An estate value is made up of assets such as property, investments and gifts / trusts set up within seven years before the settlor passes away. So as an example, if someone dies with an estate of £1,000,000 then there would be a £270,000 tax bill due within 6 months of passing away (£1,000,000 minus current nil rate band of £325,000 is £675,000 taxed at 40% is £270,000). If the majority of this £1,000,000 is the value of a property then this may need to be sold in order to pay this tax bill. This may cause considerable upset if the property is a family home which has been passed down through generations.
An Inheritance Tax bill is due within 6 months of passing away and is paid by either the executor or personal representatives of the deceased, using funds from their estate. If assets are in, or transferred into, a Trust then the trustees are usually responsible for paying any Inheritance Tax due. If a gift had been made in the past seven years before death then the value of this gift would potentially form part of the estate, depending on when the gift was made and subject to a 'taper relief'.
Following rules introduced in 2007, married couples and civil partners are not liable to Inheritance Tax on first death as they can use both of their nil rate bands on second death. This means that they are assessed on estate tax liability with a joint nil rate band of £650,000, after both partners have passed away. Their personal representatives or executors would transfer the first spouse's Inheritance Tax threshold to the second spouse when they die. If a spouse has died previously but did not use any nil rate band to transfer assets then on second death there would be a joint nil rate band available.
What Inheritance Tax solutions are available?
Various planning solutions can be considered when looking to reduce your liability to Inheritance Tax, but peoples requirements often differ so one strategy does not fit all circumstances. The main issues to review would be the value of the overall estate, age of both partners, access to capital, need for immediate income and future income requirements. You should seek professional advice to ensure the correct strategy is implemented. It is often advisable to involve other family in the planning procedure, especially if a Trust is being established.
Some of the options which could be considered are as follows:
- Placing an outright gift in a Bare Trust for the benefit of children or grandchildren. This would mean giving up access to the capital and income and would not be completely outside your estate until after 7 years have passed.
- Using a loan Trust would allow access to the original capital and place only the future growth on the investment outside your estate.
- A gift and loan trust arrangement where a small gift is made of £10 and then you loan the trustees a much larger sum. This arrangement is appropriate if you want to take a regular income.
- Discounted gift and income Trust. With this arrangement you take out a life assurance bond which you gift into trust. You retain a regular fixed income and an assessment is made as to the income you should receive. This figure is based on your assumed life expectancy and a 'discount' is offered so that you would see a reduced Inheritance Tax liability if you were to die in the first seven years after setting up the plan.
- 'Maturing policies in Trust' is a collection of investment bonds which mature on different dates. They allow you to gift money into trust for your chosen beneficiaries whilst retaining the right to periodic maturity proceeds, for example you would be offered 10% of the original investment each year. Should you not require the maturity proceeds (the 'income') then your trustees can extend the maturity date. The investment is considered outside your estate after seven years, and any investment growth is outside your estate from day one.
- Some people look to use Business Property Relief to place assets outside their estate after just 2 years. It is possible to use a low risk structure which would allow access to the capital if needed and the money would not have to be placed in Trust for the benefit of somebody else.
These inheritance tax planning solutions are just a number of examples of the options which could be considered and a combination of these may form the best strategy.
One area which should not be overlooked is the importance of making a Will. This will look to ensure your wishes are followed after you pass away and can avoid complications and arguments between family members.
Inheritance Tax planning should be considered sooner rather than later because in many cases the strategy needs many years before it will achieve its objectives. Spending time with a professional to assess your options could give your family a better chance of reducing their tax bill.
How can Inheritance Tax advisers help?
Our team of Independent Financial Advisers and Solicitors specialise in Inheritance Tax solutions. Their aim is to assist people to review their inheritance tax liability and recommend the most appropriate strategy depending on their financial objectives and ongoing income requirements.
All advice is compliant with UK legislation and regulated by the FSA.
Inheritance Tax Advice offer an initial phone call with an Independent Financial Adviser to discuss your situation.
To speak to one of our professionals please complete our contact form.