After years of hard work, of course you want to leave a lasting legacy for your loved ones to ensure they have financial security after you’re gone, whilst minimising your exposure to tax at the same time.
Inheritance tax is charged at 40% on assets including your home, rental properties, shares in your company, your savings and investments, and any personal possessions. The good news is that there are a number of valuable inheritance tax reliefs and exemptions which, with careful planning, could reduce your inheritance tax bill to nil.
Deciding how you want your assets to be distributed and complying with a complex inheritance tax regime can be daunting, but we will be with you every step of the way.
Inheritance tax is such a broad subject and there are many quirks and pitfalls along the way depending on the type of asset and how it is structured. Some of the more common topics and planning opportunities revolve around business property (such as shares held in a personal trading company), the family home, making lifetime gifts and IHT efficient investments.
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We understand that owning and running a business is personal and deciding on a succession plan can be challenging before even considering inheritance tax. Luckily, business relief is a valuable inheritance tax relief for business owners whether making a lifetime transfer or on death. Ensuring your business property qualifies for the relief is paramount as it can remove the full value of the business property from your estate. We can advise on business relief and the restructuring of your business and assets to quality.
The Family Home
The Family Home
The family home is often the most valuable asset in an individual’s estate, and has great sentimental value. Given the increase in property prices, more homes are falling into the scope of inheritance tax. Steps can be taken to create IHT savings in respect of the family home whilst ensuring it is passed to your heirs in line with your wishes.
Lifetime gifts can be a tax-efficient way to give away wealth during your lifetime without it being included within your estate and subject to inheritance tax. There are a number of exemptions to consider and we can help you create an efficient gifting strategy and consider all of the tax implications.
IHT Efficient Investments
IHT Efficient Investments
Subject to the availability of the nil rate band, holding cash and quoted shares in your estate will be subject to inheritance tax at a rate of up to 40%. Investing in tax efficient investments such as pensions, life assurance products and AIM listed shares can reduce that liability to nil. We can help you understand the tax implications and introduce you to a financial planner who can recommend investment solutions which would best match your needs.
How we can help
At Northern Accountants we are experts in Inheritance Tax Planning and have created industry-leading tools you will not find anywhere else to ensure you receive the most comprehensive review of your estate and options. As part of your Inheritance tax plan we will provide you with a personal balance sheet and a bespoke report containing planning options tailored to your specific goals and wishes. Our approach is:
After you have considered the planning options presented to you, we can assist with the implementation and take ownership of the finer details, allowing you to spend more time on things you enjoy.
Planning options that your package may include:
✓ Utilising the inheritance tax exemptions and reliefs that are available
✓ Advice on how to secure valuable tax reliefs such as Business Relief
✓ Creating a lifetime gifting strategy
✓ Recommending appropriate structures for wealth planning
✓ Advising on tax efficient investments
✓ Will planning
✓ Charity giving and philanthropic strategies
Inheritance Tax FAQs
+ How is the value of my estate calculated?
To value an estate, you’ll need to:
– list all the assets and work out their value at the date of death, and
– deduct any debts and liabilities.
Assets include items such as money in a bank, property and land, jewellery, cars, shares, a payout from an insurance policy and jointly owned assets.
+ What is the nil rate band and the residence nil rate band?
In basic terms, the nil rate band is an amount of your estate which can be passed on to your beneficiaries free from inheritance tax after death. Typically, the value of your estate above the nil rate band will be subject to inheritance tax on death, however the rules can be relatively complex and there are some exceptions. The nil rate band is currently £325,000 and it will remain fixed at this amount until April 2028.
The residence nil rate band is an allowance that reduces the amount of inheritance tax an individual might pay when passing on their main residence. The residence nil rate band is the lower of the property value or £175,000.
It is available in addition to the general nil rate band if certain qualifying conditions are met. To claim the residence nil rate band, the main residence must be inherited by direct descendants such as the children or grandchildren. However, anyone with a net estate over £2M will begin to see their residence nil rate band reduced by £1 for every £2 over this threshold.
+ How are trusts subject to IHT?
An inheritance tax liability may arise when someone dies, and it may also arise during a person’s lifetime if they transfer assets into a trust.
The main situations when inheritance tax is charged in relation to trusts are:
– when assets are transferred into a trust.
– when a trust reaches a 10-year anniversary of when it was set up (there are 10-yearly inheritance tax charges).
– when assets are transferred out of a trust (known as ‘exit charges’) or the trust ends.
Different calculations and rates are used to work out the inheritance tax payable on each of the situations listed above.
+ What happens if I don’t have a valid Will?
Without a Will, your estate will be left according to the rules of intestacy where the general rules may not give the best results for your family circumstances.
Broadly, if there are surviving children, grandchildren or great-grandchildren of the person who died and the estate is valued at more than £270,000, the partner will inherit:
– all the personal property and belongings of the person who has died, and
– the first £270,000 of the estate, and
– half of the remaining estate.
If there are no surviving children, grandchildren or great-grandchildren, the partner will inherit:
– all the personal property and belongings of the person who has died and
– the whole of the estate with interest from the date of death.
Therefore, it is always advisable to have a valid Will in place to ensure your assets are distributed in accordance with your wishes.
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