Keep it in the family

PUBLISHED: 06:30 01 September 2014

Consider your options to mitigate Inheritance Tax

Consider your options to mitigate Inheritance Tax


Since 6 April, 2009, the individual Inheritance Tax (IHT) nil rate band has been fixed at £325,000 and will remain at this level until at least April 2018. Families can offset up to £650,000 of a joint estate upon second death, provided none of the nil rate band was used at first death. Above these amounts tax is paid at 40pc, potentially leaving a large hole in a family’s inheritance. Careful planning can help to reduce or mitigate an IHT liability as follows:

Gifting capital

If an individual has surplus capital where they no longer require access, a gift could be made to a trust. On the whole, the individual no longer has personal access to the funds but can select who will benefit and when. There is a range of investments available to meet the aims of the trust which will depend on how the capital or income needs to be distributed. If an amount up to the nil rate band is invested the assets will fall outside the estate after seven years.

If some limited personal access is required there are options available from life insurance providers that will allow income to be paid from certain types of trust investments to the original owner.

IHT-efficient investments

If individuals do not wish to make any lifetime gifts, investments that qualify for business property relief (BPR) can be considered. If the shares qualify and are held for a minimum of two years they will fall outside the estate. With the changes in the budget, these types of investments can be held in NISAs, making them even more tax efficient than before. It has to be recognised that these types of investments are generally higher risk and careful consideration should be made before investing.

Annual exemptions

The basic exemptions are

£3,000 annual gift exemption – one gift to an individual can be provided in a tax year.

£250 small gifts exemption – an unlimited number of £250 gifts can be made free of IHT.

Gifts out of income – this can be made if there is a surplus of income and the gift would not have a detrimental impact on an individual’s standard of living.

These are a few examples of options available for IHT planning and through discussion a personal plan can be considered.

For a free initial, no obligation meeting to discuss this and any other matters, contact Andrew Morley at Lovewell Blake Financial Planning Limited; 01603 619620.

Please note that this article is provided for your information only. While every effort has been made to ensure its accuracy, information contained herein may not be comprehensive and you should not act upon it without seeking professional advice.

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