Inheritance Tax Advisers

If your estate has a higher value than £325,000, it is likely that you will be liable to Inheritance Tax. Gifting assets to your spouse can reduce your estate for the purposes of Inheritance Tax along with gifts to charity.

The Residence Nil Rate Band (RNRB) is an additional Inheritance Tax allowance available when a qualifying residence is passed to direct descendants, such as children or grandchildren.

The allowance is currently up to £175,000 per individual and can generally be transferred to a surviving spouse or civil partner if it is not fully used.

However, the RNRB is gradually reduced for estates worth more than £2 million, decreasing by £1 for every £2 above this threshold. Once fully tapered away, no Residence Nil Rate Band remains available. The RNRB applies in addition to the standard Inheritance Tax nil rate band and may help reduce the overall Inheritance Tax payable on an estate.

Transfers between spouses and civil partners are generally exempt from Inheritance Tax. This means that if you leave your entire estate to your spouse or civil partner, there is typically no Inheritance Tax to pay on your death.

In addition, any unused Inheritance Tax allowances may usually be transferred to the surviving spouse or civil partner, which can provide further tax planning opportunities for the future.

Gifting can be an effective way to reduce the value of your estate for Inheritance Tax purposes. Each individual can currently give away up to £3,000 per tax year using the annual gift exemption, and unused allowance may be carried forward for one tax year in certain circumstances.

Small gifts of up to £250 per person may also be exempt and do not count towards the annual exemption. In addition, certain gifts made on the occasion of a wedding or civil partnership may qualify for exemption.

Gifts made from surplus income can also be exempt from Inheritance Tax, provided they form part of a regular pattern of gifting, do not affect your standard of living and meet the relevant conditions.

As the rules around gifting can be complex, it is advisable to seek professional advice before making substantial gifts.

A Family Investment Company (FIC) is a bespoke investment vehicle. It’s a company whose directors and shareholders are, usually, individual family members or those close to you.

An FIC can hold a wide variety of assets, including property and shares. It’s a flexible way to manage investments and decide how each member benefits, based on different share types. For example, directors, who are usually senior family members, can keep control by holding voting rights. Meanwhile, other shareholders, often children, hold non-voting shares. These members still receive economic benefits (profit distribution and capital growth, for example).

You could use an FIC as part of your Inheritance Tax strategy. It’s worth considering because the company’s assets are legally separate from your personal assets. That means the value of those assets does not form part of your estate, which reduces the total Inheritance Tax bill payable on death.

Potentially Exempt Transfers (PETs) are gifts made during a person’s lifetime that are not immediately subject to Inheritance Tax. If the donor survives for seven years from the date of the gift, the gift will generally fall outside their estate for Inheritance Tax purposes.

However, if the donor dies within seven years of making the gift, some or all of its value may become subject to Inheritance Tax. Where Inheritance Tax is payable, taper relief may reduce the amount due depending on how long the donor survived after making the gift.

The effective rates of tax on gifts above the available nil rate band are:

• 0 to 3 years before death: 40%
• 3 to 4 years before death: 32%
• 4 to 5 years before death: 24%
• 5 to 6 years before death: 16%
• 6 to 7 years before death: 8%

A trust is a legal arrangement used to protect and pass on assets. One party (the settlor) gives someone else (the trustee) control of assets to manage for the benefit of a third party (the beneficiary).

Trusts can be a valuable tool for managing family wealth and planning for the future. This is because placing assets into a trust removes them from your personal estate. So, like a Family Investment Company, it’s another option for those planning their approach to Inheritance Tax.

Trusts come with a variety of tax and reporting requirements, so we recommend speaking to one of our advisers for more information.

Having a valid will is one of the most important steps you can take when planning your estate.

Without a will, your estate will be distributed according to the rules of intestacy, which may not reflect your wishes. This can create additional stress and uncertainty for your loved ones at an already difficult time.

A will is particularly important if:

• You want to decide who inherits your assets.
• You have children and wish to make arrangements for their care.
• You are unmarried or not in a civil partnership, as your partner may not automatically inherit from your estate.
• You would like to explore opportunities to reduce the Inheritance Tax payable on your estate.

It is also important to review your will regularly, particularly following major life events such as marriage, entering a civil partnership, divorce, separation or the birth of children, as these changes may affect your wishes or the validity of an existing will.