IHT planning: How do I review my inheritance tax position?

Published: Monday 20 July 2020

Succession planning is a process that takes time and needs buy in from all the family so the sooner that process begins the better.

As the cost of Government support for those affected by the coronavirus continues to increase, talk inevitably turns to how it will be funded. Tax rises are an option but with Boris Johnson pledging not to increase income tax, national insurance and VAT there is perhaps limited opportunity. Inheritance tax (IHT) has been in the spotlight recently and this may be an area that changes, so now could be a good time to review your IHT position.

STEP 1 - INITIAL MEETING

The first step is an initial meeting to discuss your circumstances in more detail and to get an understanding of your objectives.

As part of this, we can discuss any existing arrangements you may have in place.

STEP 2 - QUANTIFYING THE LIABILITY

The next step is to understand whether an IHT liability is likely to be payable on your estate and, if so, how much this will be. Through obtaining some basic details about your circumstances (e.g. assets; liabilities; will provisions) we are able to provide a summary of your current position and the IHT that would be payable on your estate.

STEP 3 – PUTTING A PLAN IN PLACE

Once we know what the liability is likely to be, we can then discuss and recommend options to help mitigate/reduce this. This process will include reviewing existing arrangements and making recommendations on the on- going suitability of these.

The key to any plan is you being at the heart of it. Our approach to IHT planning puts you first and we ensure your affairs are arranged efficiently, and that you are the priority.

Once you are comfortable with this, we can then review what options there may be to ensure more of your estate goes to the people you want it to. Being independent means we are not tied to any provider or product, allowing us to recommend the best possible solutions for your objectives from across the entire market.

Meanwhile, our cash flow modelling simulation will demonstrate the impact our planning will have on both the IHT liability on your estate and your future financial position to provide you with confidence in the planning recommended.

STEP 4 – REGULAR REVIEWS

Over time your circumstances change, meaning it is important our solutions are flexible and we regularly review these with you to ensure they remain suitable

and in line with your objectives. In addition, IHT legislation is subject to change, meaning further options or opportunities may become available.

Through regular review meetings we can ensure your affairs are continually arranged in the most efficient manner, commensurate with your objectives and in line with the most up to date rules and legislation.

IHT THE FIGURES

Wedding gifts

Parents can make a wedding gift of £5,000 to their children IHT free. Grandparents and great grandparents can make wedding gifts of £2,500 IHT free.

All other individuals can make wedding gifts of £1,000.

ALLOWANCES

Nil rate band: £325,000 is the amount everyone can pass on IHT free.

Residence nil rate band:

£175,000 is the extra allowance parents potentially qualify for by passing their home on to their children, step or foster children and grandchildren.

Married couples each qualify for these allowances.

Transfers of assets between spouses are exempt from IHT.

Gift allowances

Individuals can gift £3,000 each year IHT-free. Individuals can use last year’s allowance, if this was not used.

Individuals can also gift £250 to as many people as they wish each year, IHT free.

Regular gifts out of income can also be made IHT free. 

Gifts in excess of this are likely to be deemed ‘potentially exempt transfers’.

The individual needs to live for a further seven years for the gift to be IHT free.

IHT rates

IHT is levied at a rate of 40% on chargeable estates. 

This is reduced to 36% if the individual leaves 10% of their net estate to charity.

Reliefs

Business property relief: Investments in certain businesses qualify for 50% or 100% IHT relief. The business or asset must have been owned for two years prior to death.

Agricultural property relief: Certain agricultural land and buildings qualify for 50% or 100% IHT relief. The land or property must have been owned for two years if occupied by the owner, or seven years if occupied by someone else.

Key contacts

Andy Hogarth
Andy Hogarth
Financial Planning Manager
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