The next three decades are set to witness the largest ever intergenerational transfer of wealth as baby boomers – the richest generation in history – prepare to pass on their assets. And careful planning will be a necessity if the value of these estates is to be bequeathed in full without the imposition of potentially hefty tax bills.
When someone dies, the value of their estate, including all property, possessions, and money, becomes liable for Inheritance Tax (IHT). This tax, at a rate of 40%, is chargeable on the excess of an individual’s estate above the nil-rate band, which is currently £325,000. In some cases, this threshold may be higher, for example, if a home is passed on to children or grandchildren, or unused allowance from a spouse or civil partner is taken into account.
While the concept of death duties consistently raises strong emotions amongst the public, the nation’s total IHT bill has continued to climb over the past decade. Indeed, the latest figures released by HMRC show the tax raked in was £5.4bn during 2018-19, a 3% increase on the previous year and the highest figure ever recorded. This rise continues a long-term trend, with IHT receipts having doubled in the last nine years, partly as a result of the nil-rate threshold being frozen since April 2009.
Understandably, most people want to maximise the amount passed on to their beneficiaries and minimise any potential tax bill. However, the relatively low level of IHT thresholds, allied with soaring property values over the last decade, has resulted in an increasing number of estates facing the prospect of a significant IHT liability. But it is possible to minimise or eliminate any tax due on an estate through forward planning: undoubtedly, the key is to formulate a plan at the earliest opportunity as options for mitigating IHT become more limited the longer you leave it
A number of exemptions and reliefs are available for people seeking to mitigate the impact of IHT on their estate. Making annual gifts while you are still alive, for instance, can be a good way to reduce the value of an estate for IHT purposes. However, estate and tax planning is a devilishly complex area and a thorough understanding of the current rules and regulations is a prerequisite in order to avoid potentially costly pitfalls.
The complexity of the regime therefore means it’s imperative to seek professional advice before implementing any measures designed to mitigate IHT. So, whether you’re planning to leave your estate to your children, grandchildren, nieces, nephews, or to charity, speak to Edward Mellor Financial Services first in order to ensure you adopt the most appropriate options for your personal circumstances.
Disclaimer: The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes that cannot be foreseen.