Inheritance Tax: What can be done to reduce your exposure?

Inheritance Tax: What can be done to reduce your exposure?

The Government received £5.2billion in Inheritance Tax last year but only one in twenty estates actually paid Inheritance Tax.

So, let’s have a look at some of the ways you may be able to reduce your exposure to Inheritance Tax:-

  • Nil Rate Band

The Nil Rate Band is a personal allowance, that each individual is able to gift, upon death, without attracting any Inheritance Tax. The Nil Rate Band for 2018/19 is set at £325,000 per person and this is considered by the Government every April.

  • Residential Nil Rate Band

In addition to the Nil Rate Band (explained above), if you are passing property to a direct descendant (a child, grandchild, great-grandchildren, step-children, adopted children or foster children) then you are entitled to claim the Residential Nil Rate Band. The Residential Nil Rate Band is currently set at £125,000 and this can be added to your Nil Rate Band of £325,000 meaning that you can pass £450,000 including a property (to a direct descendant) and this will be exempt from Inheritance Tax.

  • Gifts to Charity

If you leave at least 10% of your estate to charity, then the rate of Inheritance Tax that will be paid is reduced from 40% to 36%.

  • Lifetime Gifts

Gifts of large sums of money given during your lifetime may still be liable to Inheritance Tax if you do not survive for seven years following the gift being given. Although the rate of Inheritance Tax may reduce depending on when the gift was given in relation to the time of death.

  • Gifts of £3,000

You can make gifts of up to £3,000 in each tax year and this will not attract Inheritance Tax. This £3,000 is a combined total but if no gifts are given in one tax year then this can be rolled forward to the next tax year (this can only be rolled forward one tax year though!).

  • Small Gifts of £250

In addition to the £3,000 that you are able to gift, you are also able to gift the amount of £250 to an individual without attracting Inheritance Tax, for example as birthday or Christmas presents.

  • Gifts upon Marriage / Civil Partnership Ceremony

A parent can gift up to £5,000 (grandparents can gift £2,500 and anyone else can gift £1,000) on the day of, or shortly before, a marriage or civil partnership ceremony and, as long as the wedding or civil partnership ceremony goes ahead then the gift will not attract any Inheritance Tax.

  • Occupation

If you die in active service whilst employed as a police officer, fireman, paramedic or whilst serving in the armed forces your estate may be exempt from Inheritance Tax.

  • Trusts

Setting up Trusts during your lifetime for the benefit of someone else means that the money placed into Trust will no longer form part of your estate. However, once placed into a Trust, the money is no longer yours and cannot be removed by you without forming part of your estate.

Trusts take careful consideration and planning and should be discussed fully with a professional before being put in place.

If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on  info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

Care ISAs: Are they worth the investment?

Care ISAs: Are they worth the investment?

With the proposal of Care ISAs being introduced we look at what they are and whether you should consider getting one in place.

The Government will give much more detailed information as to the Care ISA in the Autumn when their social care proposals are outlined but for now we know that the Care ISA is one proposal in the Government’s plans to get individuals thinking about, and saving for, the costs of their future care at a much earlier stage.

One of the benefits proposed with the new Care ISA is an exemption from Inheritance Tax for any funds left in the ISA at the time of death. However, with the ever increasing cost of care, this is likely to benefit only the very wealthy, who can afford to put large sums into the Care ISA to ensure that it is not all used up by care costs during their lifetime allowing a lump sum to be paid to their beneficiaries free from any Inheritance Tax.

It is also worth considering whether the Care ISA is different or any more advantageous to other pensions, investments or Trusts, that are already available and do not attract Inheritance Tax.

The Care ISA, although seemingly a great idea to provide savings for care in later life, may just be seen as yet another expense that is a luxury rather than a necessity for most. When reaching the age where going into care is a necessary consideration, it is likely to be too late to begin a Care ISA and those with time on their side, to consider saving for care in their future, are likely to consider savings for or paying off education, getting on to the property ladder and starting a family a more important and necessary expense, followed by private pensions and then possibly a Care ISA much further down their list of priorities.

Latest figures show that just one in twenty estates attract Inheritance Tax and so it is unlikely that the Care ISA will be of great benefit to the large majority when considering tax planning and planning for theirs and their families’ future and much less likely to achieve the Government’s aim of enticing us all to save more for the costs of future care.

With more information due in Autumn on the Care ISAs, we will consider the benefit of Care ISAs again later in the year.

If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on  info@TotalLegacyCare.co.uk or 01727 865 121

Leah Waller

Inheritance Tax: Record £5.2billion paid by UK in 2017/18

Inheritance Tax: Record £5.2billion paid by UK in 2017/18

With the Government collecting £5.2billion in Inheritance Tax last year, it is well worth considering whether your estate is liable for Inheritance Tax.

 

Although the record amount of Inheritance Tax paid in 2017/18 is nothing to be sniffed at, with only one in twenty estates actually paying Inheritance Tax there are ways of ensuring that your estate is not liable for Inheritance Tax, but in order to do so we must consider when Inheritance Tax is payable.

 

Inheritance Tax is payable upon death, where an estate exceeds the Nil Rate Band, at a rate of 40%. So, what is the Nil Rate Band?

The Nil Rate Band is a personal allowance, that each individual is able to gift, upon death, without attracting any Inheritance Tax.

 

The Nil Rate Band for 2018/19 (this is considered every April) is set at £325,000 per person, this may not seem like a lot considering the increase in property prices. However, in addition to the Nil Rate Band, if you are passing property to a direct descendant (a child, grandchild, great-grandchildren, step-children, adopted children or foster children) then you are entitled to claim the Residential Nil Rate Band. The Residential Nil Rate Band is currently set at £125,000.

 

If you are married and the estate is passed to the surviving spouse upon the death of the first spouse, then no Inheritance Tax is payable. Don’t worry, the deceased’s Nil Rate Band and Residential Nil Rate Band is not lost…

Upon the death of the surviving spouse, the Nil Rate Band and Residential Nil Rate Band can be combined to allow for the estate to pass to a direct descendant without attracting Inheritance Tax up to a value of £900,000 (in the 2018/19 tax year) by taking advantage of both spouses Nil Rate Band and Residential Nil Rate Band.

 

With the Government committed to increasing the Residential Nil Rate Band by £25,000 to April 2020, by the tax year 2020/21, an estate that includes a property and that is taking advantage of both spouses Nil Rate Band and Residential Nil Rate Band will be able to gift £1million to a direct descendant without attracting any Inheritance Tax.

 

If your estate is valued at over £2million then your use of the Residential Nil Rate Band attracts conditions and so if your estate is valued at over £2million then we will need to consider your exposure carefully to limit this where possible.

 

If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on  info@TotalLegacyCare.co.uk or 01727 865 121

 

Leah Waller