Estate planning will only normally be relevant if the assets in your estate at the date of your death (taken together with the lifetime gifts which do not fall within particular exceptions) exceeds the “inheritance tax nil rate band” – currently £325,000. If the inheritance tax nil rate band of £325,000 is exceeded then your estate may have to pay tax at 40% on the balance. There are certain exemptions which will avoid or reduce the amount of inheritance tax that would otherwise be chargeable. Exemptions which can apply include the following:
Gifts to spouse or civil partner
Gifts to a husband or wife or civil partner are generally exempt from tax. This applies to gifts made by married couples which are made in lifetime or on death.
Gifts left to charities are usually exempt from inheritance tax.
Each individual is allowed to make gifts each year up to £3,000 and which, once completed, are outside the scope of inheritance tax. This annual exemption of £3,000 can be doubled if the exemption was not used in the previous tax year.
Gifts on Marriage
Up to £5,000 can be given free of inheritance tax by parents to children and up to £2,500 by grandparents.
Gifts out of Income
Regular amounts given out of income without affecting your standard of living can be made. These gifts need to be carefully structured in order to ensure that there is the best possible chance of successfully claiming the exemption.
Some gifts of up to £250 per recipient each tax year will fall outside the scope of inheritance tax.
Potentially Exempt Transfers
Certain gifts may not be chargeable to Inheritance Tax if the donor survives for seven years.
Lifetime insurance policies can be created and under which benefits payable from the policies are written in trust for beneficiaries and which will assist them in paying any future tax bill. We have specialist advisers who can advise on all aspects of inheritance tax planning.
Business Property and Agricultural Property Relief
Certain business and agricultural assets qualify for inheritance tax relief. There are stringent conditions which have to be observed before relief can be successfully claimed and on which we can advise.
Deed of Variation
After your death it may be advantageous to enter into a “Deed of Variation” of a will or intestacy. Such deeds can be made for up to two years after a death and can be used to vary provisions of a will or intestacy. Such deeds are most usually made when a gift is left in a will to a beneficiary who has no need of the gift and may increase the inheritance tax potentially payable on the beneficiary’s death. In those circumstances the beneficiary can re-direct the gift to someone else. The ability to make deeds of variation can offer considerable scope for substantial tax savings.