Inheritance tax (IHT) is an increasingly important tax and one which applies to more and more estates as time goes on. The population is living longer than ever before and personal wealth is growing too, mainly due to house price inflation. Currently, tax is payable on that part of the value of an estate which exceeds the nil rate band when assets are transferred, be that during lifetime or on death. It is of great importance, therefore, that the effects of the tax are taken into account in overall financial planning. You should probably include some form of A power of attorney. With proper care and planning, IHT becomes an optional tax, i.e. one which clients opt to pay as a penalty for the retention of control of their assets during their lifetime. There are conceptually only three ways to deal with an IHT (or potential IHT) liability and these are:
Give away all assets above the nil rate band and survive 7 years. Unacceptable to most people who like control of their assets, especially their home which, as was mentioned earlier, can form a large part of their estate. If this method is chosen, the gifts made would be treated as potentially exempt transfers (PETs), or chargeable lifetime transfers and appropriate life cover should be arranged to pay the tax when it is due.
This will mean having the required cash available if the estate's assets are not to be sold to pay the tax, always bearing in mind that the executors will usually have to borrow to pay the tax.
Mitigate the anticipated liability. For most people this will be the answer and be a compromise between selected gifting and providing a fund outside the estate with which to meet the liability, through appropriate life cover in trust. These notes are intended to cover only the general rules of IHT. Advice from specialists should be sought if giving more than general guidance.
For more specific help and to talk through you options, call our team of expert advisers today