Taxation & trust planning

Taxation and trust planning is a vital part of any successful financial strategy.

A comprehensive understanding of how different products are affected by taxation issues is crucial in order to achieve a successful outcome. Does inheritance tax have to be paid or can it be mitigated? In the article below, we take a brief look at inheritance tax. If you feel you may be affected by this issue or need further advice, please do not hesitate to call us.

When is Inheritance Tax payable?

Inheritance Tax is payable when your estate (normally the value of anything you own less anything you owe) exceeds a certain threshold, called the “nil rate band”. This is currently set at £325,000 per person. Married couples and civil partners can transfer their unused nil rate band allowances, which means their joint nil rate band is £650,000.

If your estate exceeds the nil rate band available, your estate may pay Inheritance Tax of 40% on the excess. For example, if you are single and your net estate is worth £350,000, your estate may pay Inheritance Tax of £10,000 after your death (which is 40% of £350,000 – £325,000).

In some cases your estate may also include gifts you have made to other people before your death. The tax treatment of these gifts can vary depending on the amount and the type of gift, so it is important to keep accurate records in case they are required after your death.

Will you be affected?

Inheritance Tax is normally seen as something which only affects very wealthy people. However, this is no longer the case, mainly because asset values have increased over the years without the Government increasing the nil rate band or other allowances. For example, the current nil rate band of £325,000 was set in 2009.

You should carefully consider your own assets and liabilities, both now and in the future, to see if you may be liable. Some commonly overlooked areas are:

  • How much is your house worth now and what could it be worth in the future?
  • Are your debts reducing each month? For example, if you have a repayment mortgage it means the value of your estate is increasing each month.
  • Are any life insurance benefits written under Trust? If not they may be paid into your estate.
  • Will you receive a lump sum in the future? This could be from a pension, a redundancy payment or an inheritance.

How to minimise Inheritance Tax

There are four important guidelines when considering Inheritance Tax planning:

First, ensure you and your family are protected before you consider leaving assets behind for future generations. It is more important to maximise your own wealth before you try to minimise Inheritance Tax.

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Second, make sure your assets will actually be liable for Inheritance Tax before you make any plans. For example, most pensions are not included in your estate for Inheritance Tax purposes.

Third, take independent legal and financial advice before signing your assets away. Although this may seem straightforward it is often irreversible even if you change your mind in the future.

Fourth, and very importantly, ensure you have a valid, updated Will in place and make sure someone knows where you have stored it.

The most common ways to reduce your Inheritance Tax liability are to either give your assets away (either to another person or to a Trust) or to leave some of your estate to a charity after your death. There are other less common options available, including buying certain assets during your lifetime (such as a woodland or a business).

Whenever you make a gift you should ensure you keep an accurate record, including the name of the recipient, the date of the gift and the type of gift (for example, did you write a cheque or did you give them some shares?). This will make it much easier for your estate to be administered after your death and it could help to mitigate Inheritance Tax.

Further information

If you would like further information about Inheritance Tax planning, please book a free initial consultation with one of our advisers. We can assess your current assets and liabilities to see if you may be liable for Inheritance Tax and then recommend suitable ways to mitigate your liability.

Book your free initial consultation today

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28-29 New Road
Kidderminster
Worcestershire
DY10 1AF

Phone

01562 68926
07753 761 296
07507 882 984

Email

dale@bbi-ifa.co.uk
luke@bbi-ifa.co.uk

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BBI IFA

BBI Independent Financial Advisers Authorised & Regulated by The Financial Conduct Authority. The value of your investment can go down as well as up and you may not get back the full amount invested. The Financial Conduct Authority does not regulate Taxation and Trusts. Your home may be repossessed if you do not keep up repayments on your mortgage. FCA No. 471166