Inheritance and tax planning
Planning ahead allows you to set out who should inherit what assets from your estate. Our solicitors can help you to think through your plans and their financial impact. Our aim is to ensure that your loved ones are cared for when you can no longer do so.
Although thinking about life after your death may be difficult, it is simply taking care of your family. Planning your estate allows you to consider IHT reliefs and exemptions and to manage your assets in the most tax-efficient way.
Making a Will
Making a Will can reduce the inheritance tax (IHT) your loved ones pay.
Without a Will, the rules of intestacy apply, which can mean a greater inheritance tax bill. For example, under the law, a spouse or civil partner does not pay inheritance tax on assets left to them. However, without a Will in place, children may receive a greater share of the assets. Children are liable for IHT, so the tax bill is increased. This could reduce the children’s inheritance in the long run as the total assets are reduced.
Placing some of your assets in trust is another way to cut inheritance tax. This is an area requiring expert legal advice.
Transferring tax-free allowances
Everybody is entitled to a nil rate band (NRB) for inheritance tax. When assets pass from a spouse or civil partner, they are exempt from IHT. That means if somebody dies and leaves all their assets to their spouse or civil partner, they will not have used their NRB allowance.
The NRB that has not been used can be transferred to the surviving spouse or civil partner, reducing IHT when they die.
Any assets you give away to loved ones are exempt from inheritance tax if you live for at least seven years after you have made the gifts.
Gifts with a value up to £3,000 in any one tax year are inheritance tax free even if you die within seven years of making them.
Some gifts are free from inheritance tax in all circumstances. No IHT is payable on gifts to spouses and civil partners, and you can give £5,000 to your child for their wedding. Gifts to political parties and charities are also free from IHT.
Leaving gifts to charity can reduce the tax your loved ones will pay on your estate. Your donation will either be subtracted from the value of your estate before IHT is calculated or reduce your IHT rate if you leave 10% or more to charity.
Donations can be in the form of items, a fixed amount of money, or what is left after your Will's beneficiaries have received their shares.
With meticulous planning, shares in a family business can be passed on to other members of the family without incurring IHT.
Shares can be placed in trust. If the donor of the shares lives more than seven years after they have placed the shares in trust, they will fall outside of the donor’s estate. By falling outside of the estate, they are not liable for IHT.
If the shares still form part of a person’s estate at the date of death, and the assets qualify for business property relief (BPR), then there may be no IHT to pay, or the bill may be significantly reduced. That is because BPR reduces the taxable value of business assets by 50% or 100%.
To receive BPR, assets must have been owned by the donor for two or more years before their death. Not all business assets qualify for BPR. Our solicitors at Davisons can advise you.