In the UK, individuals and families who wish to pass on their legacy need to tread very carefully in order to ensure they are not hit with a hefty Inheritance Tax (IHT) bill.
IHT is levied at a rate of 40 per cent of an estate’s total value on all estates valued at £325,000 or more. This £325,000 threshold is known as the ‘nil rate band’ and, despite ever-rising wealth across the country, has remained frozen at this amount for several years.
According to up-to-date figures from HM Revenue & Customs (HMRC), the Treasury collected a record £5.3 billion in IHT last year – up 13 per cent on the amount of IHT brought in the previous year.
Reports continue to emerge suggesting that more and more middle-class families are falling foul of the so-called ‘death tax’, which is why it is now more important than ever to plan ahead by seeking specialist tax planning advice.
Individuals and families who want to explore ways of mitigating their IHT liability should investigate all of their options in order to determine which methods of tax planning will benefit them the most.
One option worth exploring might be the additional residence nil rate band (RNRB). First introduced in April 2017, this is an additional tax-free threshold families can tap into if they plan on leaving a residential property to their direct lineal descendants in their Wills. Today, individuals who take advantage of the RNRB can pass on an additional £150,000 completely tax-free.
As married couples or those in a civil partnership can combine their allowances, this means that couples can effectively now pass on £950,000 worth of property completely tax-free if they seek appropriate advice to incorporate the RNRB into their Wills accordingly.
However, the RNRB is abated if the estate exceeds the £2 million threshold, and disappears altogether if the estate’s valued over £2.25 million.
Individuals may also want to control how assets are passed on through by making use of trusts. There are many different types of trusts that can be explored. Within a trust, you can specify when assets will be distributed after your death.
But there are many other beneficial tax savings available. For example, individuals can reduce the rate at which they will incur IHT on the total value of their estate by passing a portion of it to a charity or political party when they die.
By leaving 10 per cent of their estate to a charity or political party, individuals will pay IHT at a rate of just 36 per cent as opposed to 40 per cent, for example.
There are a number of ways in which families and individuals can mitigate their eventual IHT liability and it is always worth seeking tailored advice to determine which methods are most suitable.
To find out how Richard Anthony can help you protect your assets from IHT, please contact us today.