Gone are the days that only the “super rich” had to worry about Inheritance Tax. The last couple of years have brought some of the biggest changes to IHT that this country has seen for decades. As a result, it is very likely that your estate will be impacted by IHT, unless you take action.
It is worth remembering that the Nil Rate Band (the amount that you can pass free of IHT when you die) has been capped at £325,000 per person for almost 20 years! When you consider that inflation has been at record highs in recent times, the value of this allowance is not so generous as it once was.
There is no “silver bullet” when it comes to reducing your exposure to IHT. However, there are plenty of steps you can be taking to ensure you do not pay more than you need to. Furthermore, being proactive now, during your lifetime will ensure that the greatest amount can pass to your loved ones. After all, who doesn’t want to protect their legacy?
One of the easiest steps to take is to make gifts during your lifetime. Most people have heard of the “7 year rule”. In short, if you give something away (property, cash etc) during your lifetime and survive 7 years from the date of the gifts then the value of that is no longer part of your estate for IHT purposes. It is worth noting that you must not retain any benefit in the gifted assets. The classic example being the family home, i.e. you cannot make the gift and continue to live there (unless you pay a true market rent to the recipients).
Whilst gifting outright is a simple and effective solution, many people do not feel comfortable making outright gifts because they may be worried that the recipients (often children) are not ready to receive the money outright. In addition, there may be concerns about the risk of a separation or divorce within their children’s relationships. One way to help protect about such dangers would be to transfer the assets into a trust. The people making the gift(s) would be able to appoint themselves as the trustees (and so retain control of the assets). However, importantly, the assets would not “belong” to the children (in this example) because they technically belong to the trust (creating a form of asset protection).
It is important to note that people can only gift a maximum of £325,000 worth of assets into such a trust every 7 years and so this may not be enough for many people (to reduce their IHT exposure meaningfully). At Vault Private Client (based on West Street, Alderley Edge Village), our experts have a variety of different tools that can help build a long term IHT mitigation strategy. We would be delighted to meet with you at our local offices to discuss these further.
