It didn’t take long for the Conservatives to renege on their promise to raise the IHT threshold to £1 million after they were elected. Rather than relying on politicians’ promises, early planning to mitigate the effect of IHT is likely to prove a more concrete way of protecting your wealth. Some measures are straightforward, while others are more complex and will require the help of a specialist IHT adviser.
As current rules stand, any individual who dies leaving assets worth more than £325,000 must pay 40% of the value of assets exceeding this threshold. Married couples, or couples in a civil partnership, can combine their allowances so that £650,000 of their estate is sheltered from IHT. If your estate would still exceed this threshold, a number of options can help to minimise your liability.
Make a Will: The first, crucial step. Even if your intention is that your spouse should inherit your entire estate, failing to make a Will means that you run the risk of other relatives automatically inheriting a share.
Gifting: Any gift made more than seven years before your death is exempt. Regular gifts made out of income (not from the sale of assets) are also IHT-free, as are various annual allowances and gifts made to children when they marry. Assets can be placed into a Trust for the future benefit of your beneficiaries which still allow you to take an income from them. Trusts are a complicated area which will require advice.
Reallocate your investments: Certain investments into business property or agricultural land could leave your estate for IHT purposes in as little as two years. Similarly, in order to encourage people to invest into smaller companies, investments in companies listed on the ‘AIM’ index are exempt after only two years. Again, seek specialist advice.
Bricks and mortar: If your home’s value takes you over the threshold your options include equity release or, for unmarried couples in particular, becoming ‘tenants in common’. When the first of the couple dies, their share is left to other beneficiaries via a Trust which allows the surviving partner to remain in the home. The house’s reduced value is then less likely to trouble the tax man when the surviving partner dies.
Will writing is not part of Holder & Combes internal offering and is a service which we provide through a recommended third party law firm. Will writing is not regulated by the Financial Services Authority.
HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances & changes which cannot be foreseen.