Inheritance Tax (IHT)
IHT is the tax liability on the 'estate', which is broadly everything owned at the date of death, less debts. It's assessed at 40% on the value over the 'Nil Rate Band' and is also sometimes payable on lifetime gifts.
Inheritance Tax raised around £2 billion in 2001 and £3.6 billion in 2006 and will rise significantly over coming years due to the rise in the values of personal wealth (largely driven by house value inflation).
The 2007 pre Budget report set future annual rises in the nil rate band from £300,000 to £350,000 by 2010. This is said to take into account the sharp rise in house prices in the United Kingdom, however it represents an increase below the long term rate of house price inflation. The same report also introduced the Transferable Nil Rate Band.
For many clients it’s important to minimise the amount or effect of IHT; our IHT Planning service can help with both. Steps to consider are:
Lifetime gifts to others. Are “Potentially Exempt Transfers" (PETs), - exempt if the donor survives 7 years, otherwise fully assessed for IHT.
Lifetime gift into trust. Offers the donor (Trust Settlor) more control than gifts to others. However any discretion as to who benefits makes this a Chargeable Lifetime Transfer (CLT) taxable at 20% on value over the Nil Rate Band, and periodic tax charges every 10 years. – Advice is essential.
Speciality trusts, e.g. Discounted Gift; Gift & Loan; allow for IHT planning & retain access to capital/income. Others allow scheduled return of capital whilst holding the asset outside the estate and beyond IHT whilst invested. - Advice is essential
Charitable giving is IHT exempt.
Allowable Lifetime gifts within certain limits are exempt – “small gifts” up to £250; single large gift up to £3,000, regular gifts from surplus income, some gifts on marriage.
Independent Investment Planning Ltd is authorised and regulated by the Financial Services Authority 430561.
