Inheritance Tax Planning

It is often said that the only two certainties in life are death and taxes.

Unfortunately, the tax rules in this country are such that not only do you pay tax whilst you are alive, but also you can be subject to tax after you have died. This is called “inheritance tax” (often referred to as “IHT”).

At its most basic IHT is a tax payable on the value of your assets. After your death, the value of your assets is calculated, and then, subject to certain allowances and exemptions, tax is payable on the net value of those assets. Subject to rules on monies that you may have given away in your lifetime, each individual has a personal allowance of £325,000.

In general, if your assets exceed the personal allowance, then you are subject to IHT at 40% on the value by which your assets exceed that threshold. However, gifts between married couples, or registered civil partners, are entirely free of Inheritance Tax. This used to give rise to problems in that a gift from one spouse to another may have been free of IHT, but when the second spouse died they held the entire joint wealth of the couple, but only had one personal allowance available. However, since 2007, the law states that where one spouse dies leaving the whole of their estate to the survivor of them, then upon the death of that second spouse a 100% increase in the Nil Rate Allowance for IHT purposes as at the date of death of the Second of them, can be claimed. This effectively enables the IHT threshold to be doubled for a married couple to potentially £650,000 at current tax rates.

With the increasing number of second marriages and second families, general wealth and IHT planning is ever more vital to ensure that your tax liabilities are minimised for the next generation after you have died.

The rules on exemptions are complex, as are the different allowances that are available. Some examples of this include:

  • Business owners and those involved in farming or agriculture, have specific allowances not available to others;
  • There are exemptions for gifts made to certain individuals, depending upon the nature of their relationship to you;
  • Gifts to charities or political parties are exempt from IHT.

It is never wise to base any IHT planning on some website or newspaper article, or indeed on talking with friends who may already have done their estate planning, but instead it is best to seek professional advice tailored to your personal situation. Every individual’s position is different, and what works for one person may not work for another.

We have a specialist team of expert solicitors who are always happy to talk through your personal circumstances and advise you of the best ways to minimise any inheritance tax liabilities. Although our team are based in our main offices in Worthing, Chichester and Bognor Regis from where we provide our services, we are quite happy to visit you at home or elsewhere as necessary. We pride ourselves on giving you honest advice tailored to your personal circumstances, explained in a way that you will be able to understand.

Please contact one of our legal advisors listed on the right hand side of this page for further information and guidance.