Gerry Surtees Chartered Tax Adviser

At 40%, the rate of Inheritance Tax (IHT) is one of the highest tax rates in the UK.  It is also payable on ‘taxed money’ so most people are keen to avoid it if at all possible. 

In this article we set out some of the most common misconceptions about IHT that we see, and what the truth is.

IHT is just a death tax – this is not true. IHT is also potentially payable in other situations such as when you gift money or assets into trust or make certain transfers to a limited company.  Any significant gift or transfer at an undervalue potentially has IHT implications, whatever age you are; so it’s a good idea to stop and ask for advice before doing this.

I don't need to worry about IHT until I’m in my 70s – this is not the case. Depending on the IHT planning strategies adopted you might be faced with a 7 year wait or even longer before you can be sure of avoiding an IHT liability on your estate.  The earlier you seek advice the better; we recommend you don’t leave it any longer than your mid 50s.

I can give my house to my family or a trust to take it out of my estate, and carry on living in it – this doesn’t work. For as long as you live in the house and therefore benefit from it (and in fact for 7 years after you vacate it) this remains in your estate for IHT purposes.  The best IHT planning strategies start with your other assets.

If I give money away to family, this stays in my estate for 7 years, but reduces in value gradually over that period – not quite. The money remains in your estate for 7 years for IHT purposes but doesn’t reduce in value.  Taper relief provides for a reduction in the IHT liability if that gift becomes subject to IHT on death – but in practice it is highly likely that that gift would not itself be subject to tax.  It just increases the amount of other assets that are subject to IHT – at the full 40% rate.

As a married couple, our personal assets are less than £1 million so with the new Residence Nil Rate Band, by April 2020 we won’t be exposed to IHT – not necessarily.  The Residence Nil Rate Band (RNRB) is a complex provision subject to a number of conditions that must be met, and you might not even be entitled to the full RNRB if your business assets are valuable enough.  Planning is recommended to ensure the RNRB is fully available.

As a married couple, if one of us passes away the surviving spouse automatically gets the benefit of the unused nil rate band and Residence Nil Rate Band – noThe transferable nil rate bands have to be claimed on the correct IHT forms, within the correct timescales – if they aren’t claimed the surviving spouse isn’t entitled to them which can have disastrous IHT consequences.

The bottom line is, there is no substitute for good advice – and if you are in your 50s or older, the sooner the better.  If you feel you would benefit from an assessment of your IHT position and estate planning options, we will be glad to help. 

Please contact us on 024 7667 3160 or email info@oldfieldadvisory.com

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