Inheritance Tax (IHT) planning is one aspect of financial planning that is often neglected, which can, in many instances, be a very costly error of judgement.
Upon death, as matters stand, each individual has a “nil rate band” allowance totalling £325,000 which is exempt from IHT. In addition to the “nil rate band”, each individual also has a “main residence nil rate band” which provides an additional allowance of £150,000 presently when a main residence is passed to direct descendants on death (i.e. children and grandchildren).
The “main residence nil rate band” allowance has been available when a person downsizes or ceases to own a home since 8 July 2015, at which point any assets of an equivalent value to the allowance can be passed to direct descendants upon death free of IHT. The additional allowance is subject to a tapered withdrawal for estates with a net value of more than £2 million at a rate of £1 for every £2 over this threshold.
Transfers between spouses on death are exempt from Inheritance Tax. Where one spouse leaves some or all of their estate to a surviving spouse on death any unused allowances will be passed on to the survivor in full. The survivor then has up to a double allowance available to offset against their estate on death. Currently this would equate to up to £950,000.
Whilst the allowances are valuable and can mean often mean an estate will not suffer an IHT liability, they do not apply to everyone and so careful consideration is necessary. There are a number of options that can be explored with the aim of reducing or perhaps even avoiding an IHT bill entirely, such as gifting funds, pension, holding certain investments, Trusts and Life Insurance.
If you would appreciate help with this or any other area of financial planning, please do contact the office to arrange a mutually convenient appointment with one of our highly qualified advisors at our cost.
