What would you like to happen to your assets and investments when you are no longer around to spend them? Without the right advice and careful financial planning, HM Revenue & Customs can become the single largest beneficiary of your estate following your death. The first £325,000 of an individual’s estate is taxed at 0% and is therefore not liable to Inheritance Tax (‘IHT’). This is known as your ‘Nil Rate Band’.
Inheritance Tax is applied to some estates after a person dies. Your estate means everything you own, including money, property, possessions and investments (your assets) having repaid any debts (your liabilities).
Since April 2017 there has been an additional exemption for those leaving their homes, or the sales proceeds of their homes, to their children or grandchildren (including adopted, foster or step-children). This is known as the ‘residence nil rate band’ or ‘family home allowance’.
The amount from April 2017 is £100,000 (or the value or sales proceeds of the home if less) – this amount will increase by £25,000 every April until it reaches £175,000 in April 2020. Any unused part of this amount can be passed on to a surviving partner, though the rules are complicated and so you should seek professional advice when relying on such exemptions, particularly as the relief is tapered away when the estate is worth more than £2m. It is also important that you put a will in place and review it regularly to ensure that your estate is distributed according to your wishes.
Many of our clients wish to assist their wider family during their lifetimes, as they feel that their children most need the help earlier in their lives, perhaps with the costs of property or education. Some also wish to be philanthropic and help the wider community too.
Some gifts you give while you’re alive may be taxed after your death. Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged is less than 40%. Other reliefs, such as Business Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill.
When considering making gifts, loans or donations you will need to consider a number of factors, such as taxation, financial security and your family needs. Whatever your priorities are, the sooner you start thinking about estate planning the more you can do. We can work with you to create a strategy for passing on your money and other assets. We can calculate how much you could potentially give away without affecting your normal lifestyle or future plans, and show you the best way to make your gifts.