In recent months, appeals have come from both ends of the political spectrum for an abolition of inheritance tax (IHT) or, at least, some exemption or relief for a person’s main residence.
The increasing clamour for change has been fuelled largely by the rise in house prices which have outstripped the nil rate band for IHT, currently £285,000. This amount is roughly the same as the average price of a detached house in England and, in 10% of towns surveyed by Halifax, the average price of all house types is above this amount.
Planning to minimise IHT is something that many put off until it is too late and early attention to this tax is almost always worthwhile. A gift made more than seven years before death will not usually attract any IHT so that an amount up to the nil rate band could be given away every seven years without any tax arising.
In general it helps to ensure that spouses or partners can each make use of the nil rate band. This makes it worthwhile for estates to be equalised and because transfers between husband and wife or civil partners are exempt from IHT there is no barrier to achieving this.
Where available funds preclude large lifetime transfers, discretionary will trusts may enable utilisation of the nil rate band on each spouse’s death. Where the family home is the main asset, it may still be possible to achieve this but this is a complex area and specialist advice will be required.
Making regular use of the lifetime exemptions can help to pass on significant sums free of IHT. Individuals may give away up to £3,000 per annum and, in addition, make small gifts of up to £250 per donee. There are also exemptions for wedding gifts.
Another valuable exemption, often overlooked, is gifts out of income. Put simply, normal expenditure out of current income (not savings of accumulated income) which does not leave the donor unable to maintain their standard of living will usually be exempt.
Please talk to us for further advice on these and other IHT planning steps.