Don't ignore inheritance tax

Just under 18,000 families pay inheritance tax every year.  With the average bill on an estate now standing at £170,000, inheritance tax is a topic that everyone should think about.  

This increase in the number of estates liable to inheritance tax (IHT) makes it in everyone’s interests to think about their own position, and that of their close family, if their estate is likely to exceed their available nil rate band thresholds (see separate article on page 2 of this newsletter).  

IHT becomes payable on death, at the rate of 40% on the value of an estate above the available nil rate bands.  One way to minimise or eliminate an IHT charge on death is to give property away during one’s lifetime.  

  • There are certain helpful exemptions in this regard which include:
  • an annual exemption of £3,000, which can be carried forward to the next year if not used; 
  • small gifts of £250 per year per recipient; 
  • gifts in consideration of marriage/ civil partnership of up to £5,000 by parents (£2,500 for grandparents or £1,000 anyone else); 
  • normal expenditure out of income.  This is where the donor can establish a regular pattern of giving over a period time, using their income but leaving the donor sufficient income to maintain his usual standard of living after all normal expenditure is considered.  There is no limit on this exemption; 
  • gifts to charity; and 
  • gifts to a spouse or civil partner. 

Other non exempt gifts made within 7 years of death will be brought back into account and included as part of the deceased’s estate on death, although taper relief may be available to reduce the IHT payable. 

Alternatively, travelling the world and taking that long wished for cruise will help to reduce the value of an estate and IHT!  Either way, and having said the above, we should always remember not to let the tax tail wag the dog and to keep sufficient assets to provide an appropriate income into old age.
 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.