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Inheritance Tax Planning

Inheritance Tax (IHT) has traditionally been seen as a tax only for the wealthy however, more and more people are finding that when their properties are aggregated with all their other assets, their estates are in excess of the nil rate band, meaning that IHT is no longer relevant just to the wealthy.

This could lead to people expecting an inheritance having to sell long held family heirlooms, their own assets or taking out expensive loans to meet tax bills. Careful planning could help minimise or avoid paying IHT.

Everyone’s estate is exempt from Inheritance Tax up to a certain threshold: £325,000 in 2015-2016 . This threshold is also known as the ‘nil rate band. ’Married couples and registered civil partners are also allowed to pass assets from one spouse or civil partner to the other during their lifetime or when they die without having to pay Inheritance Tax, no matter how much they pass on as long as the person receiving the assets has their permanent home in the UK. This is known as the ‘spouse or civil partner exemption’. If someone leaves everything they own to their surviving spouse or civil partner in this way, it is not only exempt from Inheritance Tax but it also means they haven’t used any of their own Inheritance Tax threshold or nil rate band. It is therefore available to increase the Inheritance Tax nil rate band of the second spouse or civil partner when they die – even if the second spouse has re married. Their estate can be worth up to £650,000 in 2015-16 before they owe Inheritance Tax. Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die.

The threshold can only be transferred on the second death, which must have occurred on or after 9th October 2007 when the rules changed. It doesn’t matter when the first spouse or civil partner died, although if it was before 1975 the full nil rate band may not be available to transfer, as the amount of spouse exemption was limited then.

There are other exemptions and allowances which come about through distributing some of your wealth prior to death known as Potentially Exempt Transfers (PETs). They are potentially exempt because from the day you give them away the tax due on death is subject to a tapering over 7 years. There are also exemptions using small financial gifts. Life Assurance can be a key component in inheritance tax planning as is an astute use of trusts.

Goldberg Steele Associates are ready to offer expert advice and solutions to help mitigate your IHT liability. One thing is for sure, if you do nothing, the government will ensure a large share of your hard earned wealth will end up in the Treasury's coffers.


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