Inheritance Tax (IHT) is often regarded as one of the most punitive taxes, at 40% on anything that you own at death over the Nil Rate Band. This currently stands at £325,000, so many find that they are left with large tax bill that takes nearly half of the inheritance intended for their loved ones.
This is an example for a married couple:
Stocks and Shares
ISAs / Cash Accounts
This kind of number is not unusual; in fact it is fairly common, and there are a number of ways that it can be mitigated, through completely legal means.
Our team would be happy to talk through some of the planning techniques which would be best suited to your situation, including some of the following:
Gifting is a very effective method of reducing your IHT liability very simply. It can be split into two main areas.
Regular and affordable gifts of income
If you have enough income to maintain your usual lifestyle, you can make regular gifts which, once leaving your estate become exempt from IHT.
Potentially Exempt Transfers
Any gifts you make that are not considered to be regular or affordable – such as a lump sum of £50,000 will start the clock for a potentially exempt transfer.
After 7 years, the lump sum will be deemed to have left your estate and will not be liable for IHT purposes. Though this may seem like a long time, taper relief is applied, so there will be a benefit after only 3 years of making the gift.
Business Property Relief
Business Property Relief, or BPR, is a relief which stops shares in many trading companies from being liable to Inheritance Tax after they have been held for 2 years. This can be used as a highly effective mechanism of moving money from your estate for IHT purposes as well as other benefits.
We work closely with Ascot Wealth Management, a company regulated by the Financial Conduct Authority (registered no: 551744) who can provide investment advice around this.
EIS / SEIS
The enterprise investment scheme (EIS) was initiated by the government to incentivize individual investors to raise venture capital for new businesses. The scheme provides a 30% income tax relief of the amount invested; allows deferral of CGT on assets brought into the scheme until disposal of the EIS investment plus all shares issued under the EIS scheme all qualify for BPR as well, which in turn relieves any assets held in EIS from IHT after two years.