Inher­i­tance Tax is the name giv­en to the tax paid when assets are giv­en away and the full rate of tax is cur­rent­ly set at 40%

IHT usu­al­ly applies when you die but can also apply dur­ing your lifetime.

Dur­ing your lifetime

IHT apply­ing dur­ing your life­time is charged in one of two ways. If you give an asset away and it qual­i­fies as a Poten­tial­ly Exempt Trans­fer (PET), there will be no IHT to pay pro­vid­ed you sur­vive for at least 7 years after mak­ing the gift.

Any assets that you give away which do not qual­i­fy as PETs are known as Life­time Charge­able Trans­fers (LCT). If the val­ue of the gift (tech­ni­cal­ly the dif­fer­ence between the total val­ue of your assets before and after mak­ing the gift) is above the Nil Rate Band (tax free allowance — see sec­tion below), you will need to pay IHT imme­di­ate­ly and this is cur­rent­ly set at half the full rate i.e. 20%. How­ev­er, if you die with­in 7 years of mak­ing the gift, addi­tion­al IHT may be due.
It is there­fore essen­tial to review your IHT posi­ton before mak­ing any gifts.

When you die

Every­thing you own is val­ued and added togeth­er to form the gross Estate’. The val­ue of items or mon­ey you gave away in the 7 years before you died are also added to this val­ue. Any debts that you owe (for exam­ple a mort­gage or cred­it card) are deduct­ed and the amount left is known as the net Estate’.

Inher­i­tance Tax applies to every per­son that leaves a net Estate which totals more than £325,000. Mar­ried cou­ples and cou­ples in a civ­il part­ner­ship can com­bine their tax free allowances to give a tax free allowance of £650,000.

The gov­ern­ment also recent­ly intro­duced an addi­tion­al allowance that will even­tu­al­ly result in an extra tax free allowance of £175,000 for an indi­vid­ual per­son or £350,000 for a mar­ried cou­ple (includ­ing those in a civ­il part­ner­ship). This can only be used against the val­ue of your prop­er­ty and only applies in cer­tain circumstances.

As well as the tax free allowance described above (known as the Nil Rate Band), there are also a num­ber of oth­er exemp­tions that may reduce the val­ue sub­ject to IHT. How­ev­er, it is always worth check­ing with a Solic­i­tor as the exemp­tions do not always apply.

What to do if you believe you may have to pay IHT

As this can be a very com­plex area, the first step is to speak to a pro­fes­sion­al that spe­cialis­es in Inher­i­tance Tax.

Many peo­ple treat finan­cial advice and legal advice as sep­a­rate issues. How­ev­er, in many ways they are two sides of the same coin. Years of care­ful finan­cial plan­ning can be undone very quick­ly by IHT, espe­cial­ly as it is cur­rent­ly charged at 40%. In many cas­es, IHT can be avoid­ed alto­geth­er through care­ful plan­ning. Equal­ly, there is no point plan­ning to avoid IHT if it will leave you des­ti­tute and unable to enjoy the pro­ceeds of your hard work.

Speak to a Solicitor

Your Solic­i­tor will assess your poten­tial IHT lia­bil­i­ty and will pro­vide you with an esti­mate of the tax due in the event of your death.

They will dis­cuss your aims (for exam­ple, to iden­ti­fy the peo­ple to whom you wish to leave your assets) and pro­vide you with the most suit­able options to meet your aims.

Speak to your Finan­cial Advisor

After dis­cussing your options with a solic­i­tor, it is always a good idea to inform your finan­cial advi­sor. They will let you know how the IHT sav­ing plans impact your day to day finances and if the options are com­pat­i­ble with your over­all finan­cial plan­ning strategy.

Once you have made reviewed the avail­able options and made your deci­sion, your Finan­cial Advis­er and Solic­i­tor will put your plans into action.

Reg­u­lar reviews

It is impor­tant to review your Inher­i­tance Tax posi­tion on a reg­u­lar basis to ensure your plan­ning is up to date. This is espe­cial­ly impor­tant if you acquire assets that qual­i­fy for IHT exemp­tions as rel­a­tive­ly minor changes in your cir­cum­stances can cause exemp­tions to be lost.

To arrange a dis­cus­sion about Inher­i­tance Tax plan­ning, please get in touch with Paul Clark on 01625 523 988 or mail@​JBGass.​com