Inheritance Tax Planning

Inheritance Tax Planning

Will writing is not part of the Intrinsic offering and is offered in our own right. Intrinsic Financial Services accept no responsibility for this aspect of our business. Will writing is not regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate on Inheritance Tax Planning and Trusts.

The value of investments and the income they produce, can fall as well as rise. You may get back less than you invested.

What is Inheritance Tax?

Inheritance tax is a tax on your capital and it is assessed at the point of death. If the value of your estate exceeds the inheritance tax threshold applying at the time, then the excess is taxed at 40%.

‘The current inheritance tax threshold is £325,000 ( 2014/15) and this will remain ‘frozen’ until at least 6 th April 2018 . This threshold applies for each of us, and so if we are married for example, the first £650,000 of our estate will be free from inheritance tax.

All asset value above the inheritance tax threshold will be taxed at 40%.

How does it work?

At the point of death, our estate will be valued and we are required to submit an application for grant of probate. This is normally carried out by our solicitor. He values all our assets and sets this down on paper.

The first £325,000 for an individual, and the first £650,000 for a married couple will be free from inheritance tax.

For example, with a married couple, if the value of your estate was, say £750,000, then the inheritance tax liability would be 40% on £100,000 (i.e. the excess over £650,000)  You would therefore pay £40,000 tax.

You can see here that the capital is taxed. It is differs from both income tax and capital gains tax in that those taxes assess income and gains. Inheritance tax is applied to the capital… which has already been taxed for income and gains… dual taxation you might rightly say!

How to avoid inheritance tax?

The first point to note is that inheritance tax can be avoided in many cases !

There are in fact a number of ways of avoiding inheritance tax:

  • We each have an annual exemption of £3,000 per year, currently and we can freely give this away. Additionally, we can gift up to £250 to any one person each year. As parents we can also gift up to £5,000 to our children on their marriage.
  • We can gift our assets without limit to others under the potentially exempt transfer rules (PET). If we then survive for 7 years, the asset will fall out of our estate for the purpose of inheritance tax. For the PET rules to be effective we must sever all ties with the gift. If we reserve a benefit (e.g . gift a rental property but take the rent for ourselves) then the value of the gift will be added back into our estate for the purpose of inheritance tax , even though we consider that the asset has been gifted.
  • Gifts between spouses and civil partners are free from inheritance tax
  • Use of the most appropriate Will can certainly help to avoid paying unnecessary inheritance tax.
  • The use of certain trusts can remove assets from our estate and reduce the inheritance tax liability.

The greatest difficulty with avoiding inheritance tax, is that most of us would like to hold onto our assets in order to ensure we have sufficient money to look after ourselves through our older age. We would also like to give our assets away to avoid paying inheritance tax. This is the crux of the problem!

Take advice

At Sterling we are specialists in the field of inheritance tax planning. We work on the subject daily. We can help! In many cases you can avoid paying inheritance tax.

The Sterling team has been providing practical guidance on inheritance tax and related trusts for over 10 years. During that time we have helped a great many clients reduce their inheritance tax liability. For some clients we have eliminated their liability.

You may not be aware, but investments can be linked to certain trusts which allow inheritance tax mitigation and also allow you to take an income without contravening the gift with reservation rules. These techniques are flexible and practical and are used and valued by many of our clients today. It is also reassuring to know that they are  ‘un-do-able’ should the need arise.

We also have access to investments linked to special trusts which provide rapid mitigation for inheritance tax. This arrangement would be suitable for someone who is older and has limited life expectancy.

It is vital that you have a Will in place. We can guide on Wills in order to maximise the mitigation, and minimise tax paid.

We provide a written report detailing all our recommendations and involve your family in the planning, should you so wish. We write our reports in plain English so that you can understand them. All the techniques we use are revenue approved.

In short… we work with our clients to create an inheritance tax mitigation strategy, and we then help our clients to carry it through. They say that inheritance tax is a ‘choice tax’… so… you can choose to avoid it!

Levels and bases of and reliefs from taxation are subject to change

Talk to us about the value in your estate that you want to protect. We will happily explain to you just how we would approach your requirements. Take advantage of our free initial, no obligation, inheritance tax consultation. We think you will like our straightforward approach.

Complete the form at the top right of this page for a call-back or e-mail and one of our experienced inheritance tax advisers will make contact with you. Alternatively visit our contact page.

Alternatively, call us on 01482 863127