You may have heard that in a recent report, the Office of Tax Simplification recommended that the Government simplifies the rules regarding Inheritance Tax (IHT). Some of the proposals include reducing the seven-year rule for gifts to five years, scrapping taper relief and simplifying the various IHT-free gift allowances. The Government will consider the recommendations and will respond in due course, although any changes are likely to take some time to be implemented.
In the meantime, as this may prompt people to think about their own IHT position, we thought it would be useful to remind clients of some of the current IHT rules.
Under current legislation, IHT applies on estates worth more than £325,000 – the nil-rate band (NRB), which every individual is entitled to. This is transferable between spouses, potentially increasing the joint NRB to £650,000. Where a main residence is being left to direct descendants (e.g. children and grandchildren) and the total estate is under £2m, the NRB could increase to up to £475,000 each for the 2019/20 tax year.
An individual’s estate comprises their assets including property, savings, investments etc and can potentially include gifts made in the previous seven (and up to fourteen) years. Certain assets, such as pensions and trust investments, may not be included in the calculations.
The rate of IHT on an estate is usually 40%, although is reduced to 36% if at least 10% of the net estate is left to charity.
There are ways to reduce IHT such as making gifts, creating trusts, investing in IHT-efficient products and using the various annual allowances which are available.
IHT can be complex, and the best strategy to reduce it will depend on a variety of factors including an individual’s personal circumstances, their objectives, their current assets and their income requirements.
If you would like to discuss estate planning, please do get in touch on 01392 875500 or firstname.lastname@example.org
Please note, this article is for information only and does not constitute investment or tax advice. Tax legislation and rules are subject to change.