Inheritance Tax & Estate Planning

Whether or not you have an Inheritance Tax (IHT) liability depends on the value of your estate when you die. It is often referred to as a voluntary tax, as effective planning could significantly reduce (or negate) your potential IHT liability.

Generally speaking, IHT is charged at 40% on the value of your assets above the ‘Nil Rate Allowance’, which is £325,000 until the end of the 2014/15 tax-year. Each person has a ‘Nil Rate Allowance’ and any unused allowance can be passed on to your spouse or civil partner on your death, potentially giving a joint allowance of £650,000 (assuming you are married or in a civil partnership). IHT is due 6 months after the end of the month in which death occurs, otherwise interest is due and your personal representatives are not able to release the assets of your estate until the tax has been paid.

Effective Estate Planning starts by having a valid, up to date Will in place. Many people are unaware of the potential consequences of dying without making a Will. However, dying ‘Intestate’ is unlikely to result in your estate passing to those that you actually want to benefit and in the way that you would want. Making gifts can be a very simple, effective way of reducing the value of your estate for IHT purposes and could be exempt, or potentially exempt from tax. However, you may not be in a position to make substantial gifts of assets as your first priority should always be to ensure that you have sufficient capital to last for the rest of your life.

Also, many people are not comfortable making large gifts to children or grandchildren directly – either because they are concerned about how the assets will be used or the potential implications if the recipient subsequently divorced or became bankrupt. Gifts into Trusts can allow you to retain control of the assets whilst you are alive and can also allow for ‘generation planning’ even after your death, potentially saving you, your children and your grandchildren IHT in the future.

There are many different types of Trust, and indeed other planning methods and therefore it is very important that you seek advice to ensure that only the most appropriate solutions are considered for your own particular circumstances. At Midland Financial Solutions Ltd, we work closely with you and your legal adviser to ensure this happens and we will provide the Trustees with ongoing investment advice regarding the Trust assets. We can of course also provide investment advice to Trustees of existing arrangements.

The FCA does not regulate taxation advice.

 

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