Passing it on
PUBLISHED: 12:00 29 June 2015
Inheritance Tax is explained by Graham Walker, director of the financial planning department at Lovewell Blake, the Norwich-based chartered accountants.
Inheritance tax (IHT) is a tax on the money or assets that a person leaves behind when they die. It can also apply to gifts that are made within seven years of death.
When an individual dies, the property, money and other assets that they leave behind (minus any debts that have to be paid off) is known as their “estate”. This estate then passes to the beneficiaries nominated in the deceased’s will, or in accordance with the intestacy rules if they die without leaving a will.
Each individual has a nil rate band (NRB) of £325,000, with any excess being subject to IHT on death at 40pc. Transfers of assets between married couples and civil partners in lifetime or on death are exempt from IHT. On the death of an individual, any unused part of their NRB can be transferred to the estate of their surviving spouse or civil partner. The amount that can be transferred is based on the proportion of the NRB unused on the first death. This proportion is then applied to the amount of the NRB prevailing on the death of the survivor.
Increased property prices have meant that an increasing number of people now have to pay the tax. According to the Land Registry of England and Wales, the average house price in Norfolk is around £158,000. This would therefore use nearly half of the £325,000 available NRB.
There are, however, a number of ways in which you can mitigate or plan for the potential IHT liability on your estate:
• Make a tax-efficient will
• Establish trust arrangements
• Utilise exemptions by lifetime gifts
• Take out life cover
• Make IHT-efficient investments
Clearly this is an area of financial planning that needs careful consideration, as other issues such as the availability of capital for potential care fees will need to be factored in. For comprehensive inheritance tax planning advice it is highly recommended that you speak to your independent financial adviser or your accountant.
Disclaimer: 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.