Planning for inheritance tax purposes is often neglected until too late, as passing on your estate feels far away and people find themselves shocked when it exceeds the nil rate band of £325,000.
Estate planning is essential to pass on as much of your wealth as possible to your family, rather than into the government coffers. The number of families in the UK paying inheritance tax has been steadily rising. The total bill for this receipts exceeded £4bn for the first time in 2016, adding £4.6bn to the government coffers in the 2015-16 tax year, the latest for which figures are available. Rising house prices and asset values mean that people have much more to leave to their children than in the past.
The new residence nil rate band, dubbed the “family home allowance”, the first tranche of which came into effect in April 2017, adds an extra £100,000 worth of IHT-free allowance. The threshold will increase until 2020, when it will be a total of £175,000 of extra allowance per individual. Extra allowance will not apply if the estate is too large, the house too small, or if the property passes to anyone other than children, stepchildren and grandchildren of the deceased, or their spouses / civil partners. Assets passed via a discretionary trust does not therefore qualify, because assets do not pass directly to direct descendants.
As with many aspects of tax planning, the devil is in the detail and failing to take straightforward steps can cost you significantly. Inheritance tax charged at 40% can take a big chunk out of the value of your estate. Setting up trusts, of which there is a wide range available, or using available exemptions are potential options for inheritance tax planning.
Estate planning involves taking into careful consideration your circumstances and objectives and reviewing all of your assets so that any efficiencies can be implemented.
The in-depth knowledge and experience of Perspective (North East) advisers across different financial planning areas means that we can help you achieve financial security for yourselves and your loved ones.
Levels, bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor
The Financial Conduct Authority does not regulate taxation and trust advice.