Recent figures have shown that even with the new inheritance tax (IHT) relief introduced in April, the Residence Nil Rate Band, the amount of IHT people pay is still set to increase, due in part to a growing economy and rising property prices, which serve to increase the personal wealth of a number of people.
There are ways of reducing the amount of tax that an estate is likely to pay with lifetime planning, such as making gifts to family and friends in life instead of within a Will. However, people should be aware that such gifts can still be subject to IHT, if the donor does not survive for a certain period thereafter. That said, everybody has an annual exemption where up to £3,000 can be given without being liable to IHT and up to £250 can be given to any number of people under the small gift exemption. It is also possible to make regular gifts out of surplus income.
Obviously IHT planning is also of the utmost importance when drafting a Will to ensure that any IHT liability is minimal, if not non-existent. Gifts to spouses, charities and the use of life interest trusts are amongst the ways of ensuring that family and friends are the main beneficiaries of an estate, and not the tax man.
Discussing IHT planning options with a solicitor at this stage may cost a little more now, but save a lot in the long term.
It has been estimated that we will pay nearly £2bn more in IHT in the next five years than was forecast six months ago. Growing house prices and the thriving stock market have both had an influence. This is despite the introduction of the new residence nil rate band. We spend our lives saving and paying taxes, and most of us want to pass our hard-earned wealth to our loved ones – not the tax man. IHT is also known as the ‘voluntary tax’ because there are so many ways to reduce it and, in some cases, eliminate it altogether. Gifting is a great way to reduce the taxable value of your estate. Gifts can be made directly to the beneficiary but could also be to trusts, as part of longer-term financial planning: Annual exemptions Small gifts Gifts from income