Simply put Inheritance Tax arises upon the value of a person’s estate (assets) upon death.
Often tax payers are reluctant to think about Inheritance Tax whilst they are alive and often a lack of advance planning leaves beneficiaries of wills facing large Inheritance Tax bills.
The first £325,000 of the value of an estate is exempt from paying Inheritance Tax, anything over this amount is chargeable at 40%. (If assets are left to a spouse then they are exempt from Inheritance Tax, and any unused Inheritance Tax exemption can be transferred to the surviving spouse).
Gifts made within 7 years of death are still included in the value of an individual’s estate and are taxed upon a sliding scale. This is to prevent estate values being significantly reduced and Inheritance Tax avoided shortly before death.
There are a number of smaller exemptions available including annual small gifts totalling £3,000 that are excluded from the 7 year rule.
Various reliefs are available for certain assets held at death, these include business assets and agricultural property, early planning is essential to minimise potential Inheritance Tax liabilities.
The residence nil rate band was announced in July 2015 - a new £175,000 allowance for passing on the family home. This means married couples and civil partners could potentially leave £1 million to the next generation with no Inheritance Tax to pay.
The allowance will be phased in between April 2017 and April 2020 starting at £100,000. However, it will be tapered down for people with larger estates – the allowance will reduce by £1 for every £2 that your estate is valued over the £2 million mark. The additional allowance only applies to the family home (not a second home or buy-to-let property) and can only be used when passing on assets to direct descendants. This is a valuable relief, with rising property prices, and should be considered carefully to fully utilise the relief.
At Mapus-Smith & Lemmon we can help you plan to minimise IHT liabilities often with simple but effective measures. The starting point is to assess your current estate value and then plan accordingly and by meeting with your solicitors and taking action accordingly.
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