Inheritance Tax (IHT) – it pays to plan early

Wright Vigar are delighted to welcome Pam Durham as a Senior Tax Manager to strengthen and support the already strong team located in 6 offices across Lincolnshire, Nottinghamshire and London. Pam is Retford born and bred and has over 22 year’s expertise in providing personal tax planning advice including Inheritance Tax (IHT) and Capital Gains Tax to clients across Lincolnshire, Nottinghamshire and South Yorkshire.

Pam said that the latest available research suggests that the UK has one of the highest rates of IHT in major world economies, more than three times the global average. In the lead up to the next general election, which is set for 7 May 2015, the main political parties may well include a pledge in their election manifesto to take some action to address this issue if they are elected. David Cameron has already hinted that they may revisit the pledge made by the Conservatives, while they were in opposition, to significantly raise the threshold at which people pay IHT. However, Pam feels that it would be prudent to consider your position and explore the planning opportunities, including wills and lifetime planning, based on current legislation rather than adopting a wait and see approach in the hope that the legislation will change in your favour in the future.

In brief, IHT is charged at 0% rate on the value of a person’s estate up to £325,000 and any excess value is then charged at the rate of 40%. This 0% band is per individual so married couples and civil partners can leave estates valued up to £650,000 without an IHT liability being incurred. This assumes, however, that the estate passes on first death to the survivor and, on second death, both of the 0% rate bands can be claimed. If any planning has been implemented during their lifetime, this can impact on the availability of the 0% band on death.

If the value of the estate exceeds the 0% rate band and an IHT liability may be incurred, there are various reliefs and exemptions which effectively reduce the value of an estate for IHT purposes and may help mitigate this liability. In particular, there are specific reliefs for qualifying business assets including farming activities and assets owned for use in the business.

Even after taking into account the various reliefs, more and more people who would not regard themselves as particularly rich are being caught within the IHT ‘net’ on death. The value of assets tied up in pension schemes and death in service benefits tend to get overlooked but could suffer a tax charge on death. A review of your current position is worthwhile as this then gives you the opportunity to put plans in place to mitigate the IHT liability.

If you wish to talk through your own personal tax planning in more detail please contact one of the tax team at your local office, or email Wright Vigar at action@wrightvigar.co.uk – we would be delighted to help you!