This Essentials Guide outlines the areas you might consider when reviewing your potential inheritance tax (IHT) exposure.
Determine who you wish to benefit from your estate and make a will
It is estimated that two-thirds of people in the UK have not made a will. The laws of intestacy may not operate in the way you expect; therefore, we recommend that you obtain legal advice to reflect your wishes.
If you are married or in a civil partnership you can transfer your estate free of IHT to your spouse or partner. If one of you has a different domicile, transfers may not be tax free, so further advice should be sought.
There is no IHT to pay if the value of your estate is below the £325,000 threshold. Anything above this is potentially chargeable to IHT if not passing to a spouse or partner. Unused thresholds on a second spousal death are available.
Giving away your home
If you pass on your home in your will to your children or grandchildren, additional exemptions can apply, although these are phased out on estates worth more than £2 million.
Gifts during your lifetime
If you make gifts during your lifetime and live for a further 7 years, there are no IHT consequences. You cannot give away your house and remain living there rent free however, as this is not an effective gift. There are other ways to make gifts without IHT consequences and we can consider these with you as part of your overall IHT planning strategy.
Charitable gifts in your will
Giving at least 10% of the net value of your estate to charity, the tax rate applying to the whole estate is reduced to 36%. It is also possible to gift the whole estate to charity and there will be no IHT to pay.
Business assets and estates
There are special exemptions available on the passing on of business or agricultural assets as qualifying lifetime gifts, or as part of an estate. This is a complex area, and we can assist you in reviewing your assets to determine what might qualify.
Setting up trusts
Trusts have fallen out of favour more recently, following a raft of anti-avoidance legislation introduced in 2006. It is still possible to use trusts as an IHT planning tool, with the understanding that there could be charges to IHT every ten years, depending on the value of the assets in the trust and the type of trust arrangement.
Individuals born outside the UK may have a domicile of origin based in their country of birth. Once you have been resident in the UK for 15 out of the last 20 years, you become “deemed domiciled” in the UK and worldwide assets are within the scope of IHT. It is possible to implement measures before you become deemed domiciled to exclude assets from the UK IHT net.
IHT is a complex area. We have experience in advising clients on their potential IHT exposure and can work with your legal counsel to help you to achieve your objectives.
Find out more
We are delighted to now offer an inheritance tax planning service at LK & Associates. Our tax specialist Nicola Dunn has over 30 years’ experience and advises clients on all aspects of UK and US tax including inheritance and estate tax planning, business exit strategy, capital gains tax for sale of property plus other assets and the interaction of UK and US tax to optimise the worldwide tax position. She has extensive experience of cross-border issues and non-UK domiciled individuals. To make an appointment please contact firstname.lastname@example.org or 020 3915 8580.