How to safeguard your estate and protect your wealth
That you leave something behind for loved ones is a gratifying thought, whatever the size of your estate. If your assets exceed £325,000 (including any gifts you have made in your last seven years), your legacy could be diminished by a 40% tax liability. Estate planning means your family will receive a larger share of your estate. The incidence of estate taxes necessitates careful planning, so due care, attention and execution of your plans is essential.
Did you know that it is expected that only 2% of estates this year will have liability to IHT. Plan with us to ensure that your liability is minimised.
Start by asking yourself the following questions:
Who? Who do you want to benefit from your wealth? What do you need to provide for your spouse? Should your children share equally in your estate – does one or more have special needs? Do you wish to include grandchildren? Would you like to give to charity?
What? Should your business pass only to those children who have become involved in the business, and should you compensate the others with assets of comparable value? Consider the implications and complications of multiple ownership.
When? Consider the age and maturity of your beneficiaries. Should assets be placed into a trust restricting access to income and/or capital? Or should gifts wait until your death?
Transferring the nil-rate band
The amount of the nil-rate band potentially available for transfer will be based on the proportion of the nil-rate band unused when the first spouse or civil partner died. If on the first death the chargeable estate is £150,000 and the nil-rate band is £300,000 then 50% of the original is unused. If the nil-rate band when the surviving spouse dies is £325,000, then that would be increased by 50% to £487,500. Currently the maximum nil-rate band that may be available to a surviving spouse (or civil partner), amounts to £650,000. This combined rate applies until 5 April 2015, unless amended by any interim announcement. Common practice is to combine the allowances together in expectation that the transferable proportion will be better utilised on the second death.
If you plan to remarry and your late spouse transferred his or her nil-rate band to you, the tax situation can be complicated. Without careful planning, your beneficiaries could lose large tax allowances. For objective advice, please ask us for advice.
Whenever there is a significant change in legislation planning should be reviewed.
Safeguarding your estate
An overview of the basics
The main exemptions and reliefs are:
The exemptions, apart from the nil-rate band have remained unchanged for many years. Thus, gifts between spouses or civil partners, during their lifetimes or on death, are completely exempt with the important exception of a gift from a UK-domiciled spouse to a spouse domiciled outside the UK, in which case the allowance is £55,000.
The annual exemption on gifts given during the life of the donor totalling £3,000 allows a small element of increase in the effective exemption each year, in the absence of an inflation increase on the nil-rate band limit. The allowance can be carried forward by one year, allowing gifts of up to £6,000 to be exempt every other year.
The unused proportion of the nil-rate band is transferable from the deceased. See ‘Transferring the nil-rate band’ above.
Gifts, whether made during lifetime or on death to UK charities, political parties, national museums and art galleries all qualify for exemption, and there are further conditional exemptions for buildings and assets of any outstanding historical or aesthetic value.
Gifts made seven years before the donor’s death are generally free from inheritance tax. But the position can be complicated by (1) gifts with reservation of benefit, and (2) pre-owned assets. Both of these may remove the seven year exemption if you have continued to benefit in…