- Uncategorized
- Nickie Barwell
Inheritance Tax Planning
Inheritance tax is the tax that arises on the estate of a person when they die. The tax, once calculated, is payable by the estate of the deceased, and not by the recipients of the estate. So, any tax due would be settled from the funds of the estate, normally by the executor appointed in the will of the deceased.
The estate consists of all assets, investments, savings and possessions, and there is no tax chargeable on the first £325,000 of the estate known as the nil rate band (NRB). In addition, if there is a main residence in the estate there is a relief of up to £175,000 called the residence nil rate band (RNRB) against the value of this property. This gives a combined total of £500,000 nil rate band for an individual to use.
If the deceased is widowed any remaining nil rate band (NRB) from their estate can be used against the estate value. If the deceased is married any transfers to their spouse are exempt from inheritance tax.
With a combination of the above mentioned bands and spouse transfers or use of unused allowances from a deceased spouse there is lots of potential for planning.
Business Relief and Agricultural relief
Business property held as a sole trader, or in partnership or within a limited company may also attract relief from inheritance tax. Companies which deal in shares, securities land and buildings or holding investments do not qualify for this relief. Advice is always suggested to be taken where business property is concerned.
Agricultural relief is also available, the conditions for this require usage of the land and property for agricultural purposes and again this can be complex so early planning is advised.
Gifts
You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’. You can carry any unused annual exemption forward to the next year – but only for one year.
Each tax year, you can also give away:
- Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
- Normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
- Payments to help with another person’s living costs, such as an elderly relative or a child under 18
- Gifts to charities and political parties