The rapid rise in house prices has led to many people who do not consider themselves to be wealthy to have an estate that is above the Inheritance Tax threshold (also known as the Nil Rate Band).
The government has set the Nil Rate Band at £325,000 for individuals and £650,000 for married couples or those in civil partnerships. For estates with values up to this limit, no Inheritance Tax is payable. Anything over this limit is taxed at 40%.
A residential Nil Rate Band has recently been introduced whereby an individual will be able to leave a share in a house up to the value of £175,000 free of tax to direct descendants (including step-children, foster children and adopted children) and this is also transferable between married couples or those in civil partnerships. It is currently being phased in and will be fully in force from 6th April 2020. It is possible to claim the allowance even if you have sold a house before you die or have downsized to a smaller house. Our experts will be happy to provide more detailed advice. In some circumstances a married couple can leave up to a million pounds tax free.
There are other ways to reduce Inheritance Tax by making gifts in your lifetime. To find out which gifts would qualify, please contact one of our team.
When working out an Inheritance Tax liability, the following will be included:
- Personal items e.g. jewellery, cars, boats, etc
- Stocks and shares
- Insurance policies
- Joint-owned assets
- Trust funds from which you were receiving an income benefit
- Any assets given away in the fourteen years prior to your death
- Any assets given away but from which you were still gaining a benefit, i.e. passing a property into the ownership of children but still living there.
Making a will enables your wills and probate solicitor to help you to plan the distribution of your estate to minimise – or eliminate – liability to Inheritance Tax. This may be the difference between keeping your assets within your family and being forced to sell them in order to pay a large Inheritance Tax bill.
A trust is a legal arrangement where one or more trustees are made legally responsible for the assets placed in trust. These assets are placed into trust for the benefit of one or more beneficiaries. The trustees are responsible for carrying out the wishes of the person who put the assets into trust.
For tax purposes, trusts are considered separately from your own personal wealth. Reasons to set up a trust include:
- Holding assets for children until they are 18 or older
- Protecting assets from Inheritance Tax
- Making provision for disabled or poorly children who may struggle to manage financially when you are gone
There are many types of trust which can be set up depending on circumstances, but trusts are not for everyone. Trusts can be very complicated and it is vitally important that the wording is correct and indisputable.
Inghams’ wills and probate solicitors can provide you with all of the advice you need in order to properly plan for succession, including comprehensive wills advice, estate planning and Inheritance Tax planning. If you wish to ask us anything about Inheritance Tax or Trusts, please call one of our offices or complete our online enquiry form.