Although this is not published until early October, I am writing it just a few days before the late Queen's funeral. It therefore seems appropriate to thank her for her life of service and to pass on our sympathies to the Royal Family. She was a very special lady
Unfortunately, death is inevitable, so I thought it appropriate to just remind everyone of when IHT kicks in. This is not meant to be an exhaustive explanation as there is not enough space for that.
Everyone has a Nil Rate Band (NRB) of £325,000 and a spouse or civil partner can inherit this. In addition, there is the Residence NRB which is up to £175,000 per individual. Again, this can be inherited.
If you combine the figures, you will see that a couple can leave £1m without IHT being due.
A point to note is that with the Residence NRB, the value must be ‘closely inherited’ by your direct lineal descendants i.e., your children (including stepchildren, adopted children, foster children), grandchildren, etc. It cannot be placed into trust except for the benefit of a minor.
If the estate is valued at more than £2m for a couple, then £1 of Residence NRB is lost for every £2 over that figure. Consequently, the Residence NRB is lost to estates over £2.7m.
Anyone with an estate in excess of this value and with three or more children will find that HMRC receives more than the individual children!
Gifts to charities and political parties are exempt.
The tax rate on death is 40%, but transfers of value during life can also attract the tax, albeit at a lower rate of 20%.
The good news is that there is a lot that can be done to mitigate the tax liability. However, the crucial thing is to take advice well in advance. If it is intended to make sizeable gifts, then seven years needs to be survived to provide maximum effectiveness.
Gifts are not the only solutions, and it is perfectively feasible to be IHT efficient but to retain access and control of your assets.
Reducing a potential IHT bill will not just happen, you must be proactive and seek advice. And it needs to be sooner rather than later, otherwise your options may reduce.
Action
If you would like more information, or would like to discuss your own position, then please do not hesitate to contact me or my colleagues, David Hughes and Denise Graham.
Peter Rutherford is a director at Rutherford Hughes Ltd. He and his colleagues can be contacted on 0191 229 9600 peter.rutherford@rutherfordhughes.com
