Whilst none of us like to think of the worst happening, it is important to plan for the future when it comes to passing on assets to loved ones, in order to plan this in a tax-efficient manner.
Inheritance tax is charged if the total value of the deceased’s estate at the date of death exceeds £325,000 – it is chargeable at 40% on the excess of this value. For individuals who are likely to breach this threshold (note that all assets, including property, bank accounts, shares held, personal chattels, etc. are included), it is useful to remember that there are ways of minimising the tax payable by those who inherit. The various methods used by HMRC to confirm that individuals do not breach the inheritance tax threshold have been highlighted in the press recently, showing that it is important not to attempt to make false claims for exemption.
It may be prudent to begin the transfer of assets during life. For example, the ownership of the main residential property may be transferred to a child. The parent can continue to live in the property, and as long as rent is paid to the child, the ownership is deemed to have been transferred, removing the property from the estate of the parent.
There are also a number of exemptions for monetary transfers during life, such as the first £3,000 per year per donor, the small gift exemption of £250 per year per recipient, donations to charities and political parties, and gifts on marriage (the value exempt is dependent on the relationship between the donor and recipient). Transfers that are made more than seven years prior to death do not fall under the scope of inheritance tax.
There are also tax-efficient methods of leaving an estate in a will. If the estate is left to the spouse of the deceased, no inheritance tax will be payable. If at least 10% of the estate is left to charity, it will be subject to a reduced rate of inheritance tax of 36%.
Green & Co operate an Inheritance Tax Review, which examines the individual circumstances of each case, and offers the most tax-efficient advice for each individual. Please contact Green & Co for further details.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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