What is IHT?

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has passed away.

Everyone has a Nil Rate Band exemption, currently sat at £325,000. In addition to this, if you leave your home to direct descendants such as children/grandchildren, an additional £175,000 is added to your tax-free allowance. So overall, your individual IHT exemption amount could reach up to £500,000.

If you are married, this can be combined to form an overall Inheritance Tax exemption amount of £1,000,000 which can be very powerful when it comes to reducing the amount of tax you pay.

Unfortunately for those that breach the IHT exemptions, it can significantly reduce the amount of wealth that is passed down to beneficiaries.

What can be done? The good news is that there are many ways to reduce your IHT liability, here’s just a few…

Set Up Trusts

• Trusts can help to reduce your IHT liability as the assets will no longer be considered as yours.
• Of course, trusts also help you control how and when beneficiaries received their inheritance, to prevent it from being mismanaged.
• There are many different types of trust, so I’ll save the details for a future blog.

Make Use of Gifts

• You can give away up to £3,000 per tax year (annual exemption) without it being subject to IHT.
• You can also give smaller gifts of up to £250 per person each year to as many people as you want.
• Regular gifts from disposable income are also exempt, only if it does not reduce your standard of living.
• Any gifts that are larger than the annual exemption could be exempt if you live for seven years after making the gift, this is known as a Potentially Exempt Transfer (PET). Another benefit of a potentially exempt transfer, if you were to pass away within the seven-year window, it will be subject to IHT but at a reduced rate, this is known as Taper Relief.

Pension contributions

• Make use of your pension contribution allowance!
• The annual allowance for 2024/2025 tax year is currently £60,000.
• One of the many benefits of pensions, the funds are Inheritance Tax free.

Business relief

• Business relief allows you to pass on qualifying business assets (such as shares in unlisted companies), free from IHT, or at a reduced rate, provided they have been owned for at least two years before your death.

Leave Money to Charity

• If you were to leave at least 10% of your estate to a registered charity, the IHT rate on the remainder of your estate can be reduced from the standard 40% IHT rate to 36%.
• Not only are you supporting a cause, but you would also benefit from a reduced IHT bill.

What could the Autumn Budget mean for Inheritance Tax?

The Autumn Budget is just around the corner, with the Labour government rumoured to be making some big tax changes in the UK. Inheritance Tax is one area that could be affected.

It’s important to keep up to date on these changes, as the allowances and tax rates may be subject to change. Shortly after the Budget Announcement, we will be releasing a blog and hosting a webinar to outline all the changes and most importantly, the impact of those changes on your financial planning.

Webinar registration link –

https://us02web.zoom.us/webinar/register/2016250632803/WN_KYATP6XcSd6sJsjUJeKIEA

If you have any questions surrounding IHT and your financial planning, contact a member of the team, we would love to hear from you.

#enjoythejourney