Inheritance Tax (IHT)
A popular misconception is that IHT is only something for the elderly population to consider and something that can be deferred until your twilight years.
In our opinion it is quite the reverse and something that you have far more control over the younger you are. This could save you thousands of pounds, and a lot of possible worry and concern too.
If you have an inheritance or if you are already thinking of ways to try and control inheritance taxes then we can help.
Inheritance tax is something most people do not worry about but probably should do, given the way house and stock prices have risen over recent years.
As a result of soaring property prices many individuals and couples will find that they have been pushed over the current threshold. For those with concerns tax planning is essential.
What do you need to know -
The threshold
You only have to begin paying IHT at a certain point, the rate at which is 40%.
For the tax year 2008-2009 it was £312,000, in 2009-2010 is £325,000 (£650,000 for couples).
But in 2010-2011, the threshold was meant to rise yet again to £325,000, and £650,000 for couples. Unfortunately, due to the UK budget deficit the Chancellor chose to cap the threshold at £325,000!
If the value of your estate, including your home and certain gifts made in the previous seven years, exceeds the threshold, tax will be due on the balance at 40%.
You may be alarmed to know what is included in your estate, so please contact us as we can help!!
Inheritance inclusions
A person's estate includes everything owned in their name; the share of anything owned jointly; gifts from which they keep back some benefit, such as a home given to a son or daughter but still lived in by the parent; assets held in some trusts from which they receive an income.
- Investments
- Property and land
- Pensions (may be)
- Stocks and shares
- Goods and chattels
- Cars and other assets
- Jewellery and antiques
- Lifetime gifts
- And anything that HMRC deem to have a financial value within the estate
Against this total value is set everything that the deceased person owed, such as any outstanding mortgages or loans, unpaid bills, and costs incurred during their lifetime for which bills have not been received, as well as funeral expenses.
Avoiding IHT
Any amount of money given away outright to an individual is not counted for tax if the person making the gift survives for seven years. These gifts are called 'potentially exempt transfers' and are useful for tax planning.
However, gifts to most other types of trust will be treated as chargeable lifetime transfers. Chargeable lifetime transfers up to the threshold suffer no tax but amounts over are taxed at 20% with a further 20% payable if the person making the gift dies within seven years.
When the tax must be paid
In most cases, IHT must be paid within six months from the end of the month in which the death occurs. If not, interest is charged on the unpaid amount. Tax on some assets, including land and buildings, can be deferred and paid in instalments over 10 years.
If the asset is sold before all the instalments have been paid then the outstanding amount must be paid. The IHT threshold in force at the time of death is used to calculate how much tax should be paid.
Gifting to family
For gifts between individuals no tax is payable at the time of the gift. When death occurs within seven years of making the gift, the tax bill tapers off.
Yrs between gift and tax |
0-3 |
3-4 |
4-5 |
5-6 |
6-7 |
Reduction in tax |
0% |
20% |
40% |
60% |
80% |
Gifts that are exempt
Some cash gifts are exempt from tax regardless of the seven-year rule. They include wedding gifts, gifts to charities, the National Trust, national museums, the main political parties and most registered housing associations. However, certain rules apply.
Regular gifts from after-tax income, such as a monthly payment to a family member, are also exempt as long as the giver still has sufficient income to maintain their standard of living.
Any gifts between husbands and wives are exempt from IHT whether they were made while they were both still living or left to the surviving spouse on the death of the first. Tax will be due eventually when the surviving spouse dies if the value of their estate is more than the combined tax threshold, currently £650,000.
Death within the seven-year period
If gifts are made that affect the liability to IHT and the giver dies less than seven years later, a special relief known as taper relief may be available. The relief reduces the amount of tax payable on a gift. (See table above)
We are so confident we can make tax savings for you and your business, we are pleased to offer a 'no strings' review of your current arrangements without charge 
