Modern Inheritance Tax (“IHT”) dates back to 1894 when the government introduced estate duty in order to raise money to reduce a £4m government deficit. When the tax was first introduced, it was intended to affect only the very wealthy but the rise in house prices, particularly in the South-East, has brought more and more families into the net in recent decades.
IHT is levied on the value of all the assets in an individual’s estate on death, after deducting any liabilities, exemptions and reliefs. Any assets left to a spouse or civil partner, irrespective of value, are exempt from IHT.
Broadly, IHT is due where an individual’s estate is valued in excess of the £325,000 threshold. The current rate of tax is 40%. Any unused threshold can be transferred over to a spouse and be set off against the value of their estate on their subsequent death thereby allowing a threshold of £650,000 before IHT falls due. In April 2017, the government introduced a further IHT allowance called the “residence nil rate band” (“RNRB”) which applies where owners of residential property pass their property down the generations. The RNRB does not apply in every case – its availability is dependent on a number of factors including the size of the estate, your family setup and having an appropriate Will in place.
The value of any assets which are left to charity are also exempt from IHT. Furthermore, where an individual leaves at least 10% of their net estate to charity, the IHT rate is reduced from 40% to 36%.
In some cases, it may be appropriate to use trusts as a vehicle to mitigate IHT and all of our advisers are able to provide guidance on the tax implications of doing so. We have also developed an expertise in setting up bespoke family investment companies as an alternative structure to trusts which enables you to pass significant wealth to the next generation whilst retaining control and protecting your assets. We work closely with other advisers such as accountants, financial advisers as well as our in-house corporate team to put in place the most efficient arrangements for you.
Measures can also be taken in lifetime to reduce the exposure of your estate to IHT and we can provide you with advice in this regard should you require it.
All of our Will consultations with a member of our experienced team include an assessment of the IHT position and a discussion on how to mitigate this if necessary.