Inheritance Tax Planning

19/02/2022 Emma McCaul 0 Comments

If you feel your may have a potential Inheritance tax (“IHT”) liability given the size of your Estate, it is worthwhile consulting with your Solicitor and Tax Advisors to look at measures to minimise any liability.

Several measures can be explored to manage your personal finances and assets effectively as part of wider Estate planning exercise. Some are more complex and require appropriate advise such as putting assets into various types of Trusts etc, however there are basic Estate planning opportunities which are outlined below.

Make use of your Annual Exemptions and Allowances

If you are concerned about planning for IHT then this is often the best place to start. Very broadly speaking, the value of a gift such as money or property will still be treated as part of your Estate for the purposes of calculating IHT for any gifts within the 7 years prior to the date of death. This is known as a potentially exempt transfer (“PET”). However, there are some exemptions to this rule and some annual allowances, which enable you to gift assets in the knowledge that the value will immediately be brought outside of your estate for IHT:

  • Provided both are domiciled in the UK, gifts between spouses are always exempt from IHT, no matter the value of the transfer;
  • Gifts to qualifying charities and political parties are also exempt;
  • An individual can make unlimited small gifts of up to £250;
  • Individuals can make gifts totalling £3000 per annum and can also carry over an unused allowance from the previous tax year;
  • Wedding/Civil Partnership exemptions enable a parent to gift £5,000, a grandparent to gift £2,500 and any other individual to gift £1,000 to a couple getting married or entering a Civil Partnership.

In addition to the above exemptions and allowances, there is a further exemption for IHT Accounts which is normal expenditure out of income. Where an individual can establish a regular pattern of giving, which comes only from excess income and not from capital, and which enables them to maintain their usual standard of living, then these gifts would not be considered as PET’s for IHT purposes. It is certainly worth some consideration where an individual has the means to achieve it.

Other available Reliefs

Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”) apply to agricultural and business assets which meet certain criteria. For those you who are neither famers nor business owners, it is still possible to take advantage of these reliefs by investing in certain qualifying assets. Expert legal and tax advice should be taken if this is you plan on relying on these reliefs as the criteria needs to be met during the lifetime of the deceased.

Other Lifetime Gifts

Further to PET’s mentioned above, any gifts made outside of the 7 years prior to the date of death will fall outside your estate for IHT purposes.

Review your Will

Make sure your Will is up to date and take advice on how it may be structured so that it is as IHT-efficient as possible.

It is worthwhile to revisit this subject with your Solicitor and Tax Advisors regularly.

Inheritance Tax Planning was last modified: March 28th, 2023 by Emma McCaul