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Tax-efficient estate planning
Keeping inheritance tax to a minimum
An estate plan that minimises your tax liability is essential.
The more you have, the less you should leave to chance. If
your estate is large it could be subject to inheritance tax (IHT),
which is currently payable where a person’s taxable estate is in
excess of £325,000. However, even if it is small, planning and
a well-drafted Will can help to ensure that your assets will be
distributed in accordance with your wishes. We can work with
you to ensure that more of your wealth passes to the people
you love, through planned lifetime gifts and a tax-efficient Will.
Estimate the tax on your estate
£
Value of
: Your home (and contents)
Your business
1
Bank/savings account(s)
Stocks and shares
Insurance policies
Other assets
Total assets
Deduct: Mortgage, loans and other debts
Net value of assets
Add: Gifts in last seven years
2
Less: Legacies to charities
Deduct: Nil-rate band
– 325,000
Deduct: Residence nil-rate band
Taxable estate £
Tax at 40%/36%
3
is £
1. If you are not sure what your business is worth, we can help
you value it. Most business assets currently qualify for IHT
reliefs
2. Exclude exempt gifts (eg. spouse, civil partner,
annual exemption)
3. IHT rate may be 36% if sufficient legacies left to charities
(see later). The tax on gifts between 3 and 7 years before
death may benefit from a taper relief.
Making a Will
If you own such possessions as a home, car, investments,
business interests, retirement savings or collectables,
then you need a Will. A Will allows you to specify who will
distribute your property after your death, and the people
who will benefit. Many individuals either do not appreciate its
importance, or do not see it as a priority. However, if you have
no Will, your property could be distributed according to the
intestacy laws.
You should start by considering some key 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 to all of your children, or only
to those who have become involved in the business, and should
you compensate the others with assets of comparable value?
Consider the implications 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?
Making use of lifetime exemptions
You should ensure that you make the best use of the available
lifetime IHT exemptions, which include:
• the £3,000 annual exemption
• normal expenditure gifts out of after tax income
• gifts in consideration of marriage (up to specified limits)
• gifts you make of up to £250 per person per annum
• gifts to charities
• gifts between spouses, facilitating equalisation of estates
(special rules apply if one spouse is non-UK domiciled).
Spouses and civil partners
On the first death, it is often the case that the bulk of the
deceased spouse’s (or civil partner’s) assets pass to the survivor.
The percentage of the £325,000 nil-rate band not used on the
first death is added to the nil-rate band for the second death.
Case Study
Chris and Hilda were married. Chris died in May 2008, leaving
£50,000 to his more distant family but the bulk of his estate
to Hilda. If Hilda dies in 2018/19 her estate will qualify for a
nil-rate band of:
Nil-rate band on Chris’s death
£312,000
Used on Chris’s death
£50,000
Unused band
£262,000
Unused percentage
83.97%
Nil-rate band at the time of Hilda’s death
£325,000
Entitlement
183.97%
Nil-rate band for Hilda’s estate
£597,902
If you die within seven years of making substantial lifetime
gifts, they will be added back into your estate and may result
in a significant IHT liability. You can take out a life assurance
policy to cover this tax risk if you wish. However, you can make