Inheritance tax

Inheritance tax can be a huge financial burden on one’s beneficiaries charged at 40%. The point being made above is that a lot of planning can be done to reduce or even mitigate this burden. The earlier one starts to plan for this tax the more effective the plan can be.

‘Inheritance Tax is, broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue!’
(Roy Jenkins MP, 1986, in a Commons debate about IHT, cited in Brooks Green, no date).

Basics on inheritance tax……

Everyone can leave an amount of money free of tax known as the Ni Rate band (NRB). The NRB is currently set at £325,000 per person. This means the first £325,000 of an inheritance is free of inheritance tax.

If you leave your entire estate to your spouse, you can also leave your NRB. This then means that on second death your spouse would have two lots of £325,000 or £650,000 before the beneficiaries start paying tax.

In addition to the NRB we now have a residence nil rate band (RNRB). This is a further allowance which you can benefit from if you are leaving your main residence (family home) to your direct descendants. Direct descendants being children, which includes stepchildren, fostered children and adopted children. You get a further £175,000 as a RNRB.

If you are single and leave a family home of which its value is above £175,000 then you could use the RNRB and the NRB which is £175,000 plus £325,000 which would mean the first £500,000 would be free from tax.

Like the NRB if you leave everything to your spouse you can also leave them your unused RNRB. If your spouse was to leave a family home above £350,000 then they could use two RNRB and two NRB so £175,000 x 2 plus £325,000 x 2 giving a total of £1,000,000 which would be free of inheritance tax.

The RNRB starts to get withdrawn if your total estate is over £2,000,000 so advice is highly recommended.

How do you plan for inheritance tax?

When we work with clients who have concerns their estate will be subject to inheritance tax the first thing we do is gain an understanding of your total net worth now. We learn about your family and who you want to benefit on first and second death for couples.

 Once we have this clear picture, we can make recommendations to improve your situations. This could include the following:

• Using annual exemptions

• Changing the ownership of assets

• Gifting certain assets away over time

• Reviewing investments to become more efficient for inheritance tax

• Using inheritance tax efficient trusts

When we have complex estates this often involves working alongside estate planners or solicitors. We work readily alongside your preferred choice or we can recommend a company that we have worked alongside before and know to trust. 

If you want to learn more about how you can protect your loved ones from this punitive tax we welcome your call. 

Past performance is not an indicator of future performance. The value of investments and income derived from them may go down as well as up and you may not necessarily get back the amount you invested.