Inheritance tax – don’t pay what you don’t have to

We have all heard the saying before ‘the only two certainties in life are death and taxes’, so when it comes to inheritance tax (IHT) this means they can turn up together.
Almost £4.9 billion was paid in inheritance tax in 2016/17, which is a record high. No wonder the Chancellor Philip Hammond has asked for a review of ‘simplification’.
The first step is to try and work out if you will be affected by IHT. Under normal circumstances, IHT is paid at 40% of the value of your entire estate, which is your property, money, assets and possessions over £325,000 (the normal nil rate band). There’s also an additional allowance if you pass on your family home to a direct descendant, which is currently set at £125,000. The simplest way to check if you might be affected is by using an online calculator, this will work it out for you. Although they won’t take into account all of your personal circumstances.
Making gifts
There are plenty of ways to reduce or remove IHT altogether and, the sooner you do this the better. One way is to make gifts.
Money towards house deposits or university fees, are great ways to give your loved ones that helping hand towards their future. Gifts like this can also reduce the size of your estate and your potential IHT bill, though there are rules to follow and to adhere to.
1. Exempt gifts – these are IHT free immediately.
2. Potentially exempt gifts – these may become IHT free over time.
3. Chargeable gifts – these might mean an immediate IHT charge.
You should however be aware that once you make your gift you can’t take them back, so it is worth considering if the recipient will be responsible with it.
The gift becomes the property of whoever you’re giving it to. Therefore, you will no longer benefit from any income and you won’t be able to access the capital in the future if you needed it.
You should always consider taking professional financial advice when planning life changing financial situations. Your tax advisor at McPhersons will show you the steps to take when planning for IHT.
Tax rules and benefits are constantly changing and depend on personal circumstances. Your tax advisor can check that you are up-to-date and are making the most of your personal allowances.
Contact us or give us a call and we’ll help you understand whether IHT is likely to affect you, and whether you could take action to reduce it.
Ainsley Gill
McPhersons Chartered Accountants