Inheritance Tax - Are you liable?

Individuals are becoming increasingly liable to Inheritance Tax (IHT) when they die.  The threshold at which an individual begins to pay IHT has been frozen at £325,000 since 2009 and the Government has confirmed that this is set to remain unchanged until at least 2018.  Due to inflation therefore this freezing of the threshold represents a tax rise.

Estates which are in excess of the £325,000 nil rate band and which are not passed to a surviving spouse/civil partner or charity are typically liable to IHT at 40% on the excess.  However, where assets on the death of the first spouse/civil partner are passed to the surviving spouse/civil partner, then the survivor may benefit from a doubling in their nil rate band. This means with the correct Will planning, a married couple/civil partners may only begin to pay IHT when their joint estate exceeds £650,000.

Assets may always be given away prior to death.  However, such gifts will be added back to a deceased’s estate unless they have survived 7 years from making the gift.  If the gifted asset is not cash then a capital gains tax liability may also arise.

For small gifts of up to £3,000 per year or regular gifts out of income there is no requirement to survive 7 years.

Where the donor wishes to gift a valuable asset, such as property, but does not wish to lose control of the asset then the donor may decide to gift the asset into a trust. Under this route it may also be possible to defer capital gains tax.

For farming and other trading businesses there are special reliefs from IHT.  These reliefs can be extremely valuable as they can exempt up to all the assets of a business from IHT, regardless of value.  However, as an individual’s circumstances can quickly change in later life then it is important that active steps are taken to ensure that the conditions of these reliefs continue to be satisfied.

With careful and timely planning it is possible to protect assets from IHT and even care home fees but professional advice should always be sought in the first instance.

should you require any further information please do not hesitate to contact James Cornthwaite at the office.