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Benjamin Franklin once said that nothing in life is certain except death and taxes. While there is not much that can be done regarding the former, tax liabilities can be carefully managed, controlled, and minimised where possible.
Inheritance Tax is levied on the value of an estate on death, as well as on gifts made by the deceased within 7 years. The tax must be paid within 6 months of the death, and before Confirmation can be issued.
The Government has committed to freezing the ‘nil rate band’ at £325,000 until the end of 2021, which is bad news for anyone wishing to pass their savings to their heirs. In the Conservative Summer Budget of July 2015, the Government confirmed an additional Inheritance Tax nil rate band of up to £175,000, where the total estate is below £2 million and the family home is passed on to children or grandchildren.
However, the full £175,000 property nil rate band will not be available until 2020. The allowance will first become available in 2017/18 tax year at £100,000 and increase to £125,000 in the 2018/19 tax year, £150,000 in 2019/20 tax year and £175,000 in the 2020/21 tax year. Like the existing nil rate band the new property nil rate band can be transferred between spouses or civil partners. This means that in 2020/21 a married couple could pass £1 million to their children tax free on death provided the family home is worth at least £350,000, saving them £140,000 in Inheritance Tax.
Tilney has advised clients from a wide range of backgrounds on how best to manage their Inheritance Tax liability. Each solution is as individual as the client themselves, and our clients benefit from bespoke advice tailored to their circumstances.
The best approach is often a combination of simple, uncontentious strategies designed to protect wealth for future generations.
Broadly speaking, estate planning can be divided into four areas:
Making outright gifts of savings
Making gifts, while retaining some beneficial interest
Continuing to own the assets outright, but looking to mitigate the impact of Inheritance Tax
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.
These pages are for professional use only.
The above text is based on our interpretation of the Budget July 2015 and related legislation; it is not intended as advice, and the impact of any changes to tax rates or allowances will depend on your personal circumstances.
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