Inheritance Tax (IHT) accounted for £5.1 Billion of government income for the 12 months to may 2017, up from £2.69 billion in 2010.
IHT is levied on the net value of your assets at a rate of 40% over a certain threshold known as the Nil Rate Band, currently £325,000 in 2017-18, and due to remain at the same level until 2020-21.
From October 2007 the NRB has been transferrable between married couples and between civil partners. Thus, a married couple have an allowance of £650,000 against Inheritance Tax, whilst a single person's allowance remains at £325,000.
In April 2017, an additional Residence Nil-Rate Band (RNRB) was introduced giving an additional £100,000 allowance, rising by £25,000 each tax year to £175,000 in 2020-21, for certain estates where property is passed to direct descendants.
There are a number of gifts and investments you can make during your lifetime to limit your exposure to IHT. Some people will also look to use a trust mechanism in order to reduce their Inheritance Tax exposure. Please contact us if you would like free advice on your potential Inheritance Tax liability.
Trusts can be an effective tool in succession planning, enabling you to make provision for family members, friends and charities without the formalities of probate. A trust may also be used to protect your assets from claims of future creditors or in the event of divorce. For many, trusts are an excellent way of estate planning by reducing tax liabilities and in some cases minimising or eliminating Inheritance Tax altogether. A trust can either be established during your lifetime or on your death under the terms of your Will. Trusts allow you to pass on your wealth to other people you have chosen and are often used to control and protect family assets.
A trust might be created in the following circumstances:
- when someone is too young to handle their affairs
- when someone can't handle their affairs because they are incapacitated
- to protect the assets for your children from a future spouse
- to pass on money or property while you are still alive
For further information or an individual assessment of your current tax liability and trust options, please contact us for a personalised discussion with one of our advisers.