Families & Inheritance Tax Relief

More families are paying inheritance tax than at any time since the rules were introduced in 1984. So reducing the burden of IHT has become an important priority for a growing number of families and plans should be regularly reviewed.

Everyone is currently entitled to pass on £325,000 of wealth, tax free, with any assets in an estate above this amount incurring an IHT charge.

It can only be right that when you've worked hard to own your own home, that it will go to your family and not the taxman. So when George Osborne revealed in the 2015 Summer Budget that he will scrap the duty when parents or grandparents pass on a home that is worth up to £1m, (£500,000 for singles), it was welcome news.

From 6 April 2017, the Government will phase in a new nil-rate band when a residence is passed on to a direct descendant. The relief will add an extra ‘tax-free’ band in addition to the current nil-rate band for IHT of £325,000. The relief will start at £100,000 and rise in stages to £175,000 by April 2020.

But as with all reliefs it is easy to misinterpret and miss out. It is therefore important that this is planned for by a specialist when considering IHT by everybody with property.

Contact us today and we can explain the phasing and demonstrate how you can best take advantage of this new threshold.

There are other IHT reliefs to consider too. Here are 4 further ways to cut your Inheritance Tax…

• make a gift to your partner
  

  If you’re married or in a civil partnership, you can give anything you own to your spouse or civil partner – so your estate won’t have to pay Inheritance Tax on the gift’s value.

• give to family members or friends
  

  If you give something to a friend or a family member who is not your spouse or civil partner, so that you no longer get any benefit from it, the value of the gift will still be included in your estate for Inheritance Tax – but only for seven years. So, for example, if you give one of your children some money, and you live for a further seven years, it won’t be taken into account when calculating the Inheritance Tax liability when you die.

• leave something to charity
  

  If you leave at least 10% or more of the net value of your estate, it’s possible to reduce the rate of IHT on some assets from 40% to 36%

• put assets into a Trust
  

  The kind of Trust you choose depends on what you want it to do. Some Trusts will have to pay Inheritance Tax in their own right rather than as part of your tax bill; others might have to pay Income Tax or Capital Gains Tax.

  As there are numerous types of Trust, it is key that you and those advising you on the legal and documentary aspects of wealth planning liaise closely with those who look after your family's financial and tax affairs. At GSM, we believe Trusts are a really useful tool in more effective Inheritance Tax Planning. So, our clients greatly benefit from our experience and knowledge of such matters and we work with them in setting up such a Trust.

  Contact us now, to discover which option would be right for you and your family.

By setting aside assets for beneficiaries in the future, we can minimise the inheritance tax burden for future generations. But there are other vehicles too, that we will also consider:

While Trusts have traditionally been the vehicle of choice for passing down family wealth, currently the Family Investment Company can offer some attractive benefits over the Trust in this regard:

On transferring cash to a Family Investment Company, there is no immediate Inheritance Tax payable. (The Finance Act 2006 means that putting funds into a Trust generally incurs an immediate 20% inheritance tax charge.)

Equally gifting Family Investment Company shares to other family members will not attract Inheritance Tax either, providing that the donor survives seven years after gifting.

However, (except in certain circumstances), inheritance tax will still be payable, if a donor holds shares in a Family Investment Company upon his or her death. The bigger the value of the shareholding, the more inheritance tax is payable, (which, conversely, means that smaller holdings are discounted).

At GSM we will work with you to identify ways to minimise your inheritance tax liabilities, reviewing your estate – including personal and business assets to ensure that they are as tax-efficient as possible. Contact us to hear more.