It is never too early to start planning where Inheritance Tax (IHT) is concerned. At the very least, you should keep a watching brief on the value of assets that could be part of your estate, particularly in relation to the inheritance tax nil-rate band. This has not changed since 2009 and whilst it is set to remain at its current value of £325,000 until 2014-2015, the value of your assets, in the meanwhile, could rise above the nil-rate level.
New legislation is due to take effect from 6 April 2015 that will see the nil rate band rise in line with the Consumer Prices Index (CPI), instead of the higher Retail Prices Index (RPI). This could result in a lower than anticipated rise of the threshold level. This and subsequent changes to the threshold, will almost inevitably result in more people having to pay inheritance tax.
Consumer research from Legal & General about how people prepare for inheritance tax, reveals that although most people (69%) are aware of the potential IHT hit on their hard earned wealth, the majority of those questioned (69%) have taken no action beyond making a will. The top three reasons given by respondents for putting off estate planning are – ‘It’s too far off for me to consider’ (38%) – ‘I keep putting it off’ (24%) – ‘I don’t know where to start’ (15%). However, half (50%) of the people questioned (who are under the age of 50) said they would like to learn more about tax mitigation after being shown details of IHT charges.
The research responses also show that people looking for help to minimise inheritance tax seek professional advice or guidance. The top 3 sources consumers ask for advice are IFAs (30%), solicitors (26%) and accountants (13%). The Treasury estimates that in 2015–16, around 1,500 more estates will have to complete more complex paperwork for HM Revenue and Customs. Of these, more than half – around 900 – will then be liable for IHT and this figure is expected to continue rising.
According to HMRC:
Sometimes, even if your estate is over the threshold, you can pass on assets without having to pay inheritance tax. Examples include:
Spouse or civil partner exemption.
Your estate usually doesn’t owe inheritance tax on anything you leave to a spouse or civil partner who has their permanent home in the UK – nor on gifts you make to them in your lifetime – even if the amount is over the threshold.
Any gifts you make to a ‘qualifying’ charity – during your lifetime or in your will – will be exempt from inheritance tax.
Potentially exempt transfers.
If you survive for seven years after making a gift to someone, the gift is generally exempt from inheritance tax, no matter the value.
Annual exemption. You can give up to £3,000 away each year, either as a single gift or as several gifts adding up to that amount – you can also use your unused allowance from the previous year but you use the current year’s allowance first.
Small gift exemption.
You can make small gifts of up to £250 to as many individuals as you like, tax-free.
Wedding and civil partnership gifts.
Gifts to someone getting married or registering a civil partnership are exempt up to a certain amount.
Business, Woodland, Heritage and Farm Relief.
If the deceased owned a business, farm, woodland or National Heritage property, some relief from inheritance tax may be available.