Inheritance Tax Planning
Advisers within BHP Financial work very closely alongside the legal advisers within BHP Law. When seeking advice concerning inheritance tax planning both a legal and financial perspective is useful and for this reason at BHP you are provided with access to both sets of specialist advisers when looking at inheritance tax planning.
Due to the dramatic increase in property values over the last few years, many people find that they are (perhaps unknowingly) over the current Inheritance Tax nil-rate band of £312,000.
Inheritance Tax is presently charged at the rate of 40% on the value of the assets exceeding the nil-rate band (with some exceptions as to business and agricultural property). Thus, an estate consisting of a home worth £312,000 and a further £100,000 of other assets will pay tax of £40,000.
Although assets passing to a spouse are exempt for Inheritance Tax purposes, where everything is left to the surviving spouse, the two estates will be amalgamated and on the survivor’s death Inheritance Tax may need to be paid.
Although to a certain extent, we are ultimately in the hands of the Government as to how effective any Inheritance Tax planning may be in the future, it is currently possible to mitigate your liability in one or more of the following ways:
Life Time Trusts
A life time trust is a vehicle by which you can transfer personal assets (such as property or cash) into a trust which is managed and invested by trustees (of which you could be one), for the benefit of specific or a number of beneficiaries.
There are various types of trust which can be created depending upon your personal circumstances.
Transferring assets into a life time trust for Inheritance Tax planning can be very tax efficient, provided you survive for 7 years after the transfer. There are, however, potential Capital Gains tax and income tax implications which apply to lifetime trusts although hopefully the Inheritance Tax savings would far outweigh any tax payable during your lifetime.
Will Trusts
Will trusts are particularly appropriate where a husband and wife are keen to mitigate their potential joint Inheritance Tax liability. For example, rather than leaving everything on the death of the first of you to the surviving spouse, you may wish to consider ensuring that you both split your assets tax efficiently. It is possible to split your assets (including your home) into separate names.
Your will could then direct those assets held in your sole name (which could include a half share in your house) into a simple form of discretionary trust on your death. The surviving spouse could be included as a beneficiary and also be a named trustee, therefore avoiding any difficulties. This concept is particularly attractive if you wish to ensure that some of your estate passes to your children.
Your will could then direct those assets held in your sole name (which could include a half share in your house) into a simple form of discretionary trust on your death. The surviving spouse could be included as a beneficiary and also be a named trustee, therefore avoiding any difficulties. This concept is particularly attractive if you wish to ensure that some of your estate passes to your children.
Lifetime Gifts
Many people ask if they can “give away” assets such as their home or cash in order to reduce their potential Inheritance Tax Liability or to protect their vulnerability in old age. Whilst you are of course free to gift whatever belongs to you during your lifetime, there are pitfalls that must be addressed before you choose to make the gift. For example, the reservation of benefit rule if you, as the donor, continue to benefit from the asset you have transferred by way of a gift.
You must also survive 7 years if the full Inheritance Tax saving is to be effective. The above are some of the most commonly used ways in which to mitigate your Inheritance Tax liability, however, each person has their own personal and financial circumstances which must be considered fully before a decision is made.
There are a number of ways you can address the issue of inheritance tax and our financial and legal advisers are here to help show you the way.
