Inheritance Tax Planning
Inheritance Tax can mean that a substantial part of your estate will pass to HM Revenue & Customs on your death. However, there are several legitimate ways of reducing the tax bill that your estate will face.
Making sure your estate is as tax efficient as possible can be complex. The rules surrounding trusts, tax and Inheritance Tax exemptions need to be complied with carefully and expert advice should be sought before making any decisions.
At Griffith Smith, our Inheritance Tax solicitors have extensive experience in structuring estates to minimise the amount of tax that will be payable, including dealing with complex and high value estates.
The best ways to ensure that your affairs are structured efficiently for tax purposes are as follows:
- Make a tax efficient Will
- Utilise all available Inheritance Tax exemptions and reliefs
- Make gifts either directly or by putting money into a trust
We will be happy to advise you on any of these options, helping you to find the right approach for your estate and intentions.
Speak to our expert Inheritance Tax planning solicitors in Sussex now
Why choose Griffith Smith for Inheritance Tax planning?
In-depth Inheritance Tax planning expertise
Our tax and trusts solicitors have extensive experience in dealing with estate planning and Inheritance Tax rules, including for High Net Worth individuals and complex estates. We will take the time to fully understand your situation and put together a bespoke estate plan to minimise your tax liability.
Clear advice tailored to your unique circumstances
We will get to know your needs and aims so we can ensure that the advice we give you is the right solution for you and for your loved ones in the future.
Exceptional client service
We always strive to ensure you have a first-class service from all of our team. We will make sure we are available to speak to you as needed to discuss matters and answer all of your questions. Any concerns you have will be addressed promptly.
Inheritance Tax FAQs
How does the nil rate band work?
Everyone receives a nil rate band of £325,000, meaning that no Inheritance Tax is payable on the first £325,000 of your estate.
For the rest of your estate, Inheritance Tax is generally payable at a rate of 40%.
There is a second nil rate band in respect of your residence, referred to as the residence nil rate band. If you leave a property to your direct descendants, such as children or grandchildren, then a further £175,000 can be passed on free of Inheritance Tax.
A spouse can inherit their husband or wife’s estate without any Inheritance Tax being payable. The spouse’s unused nil rate band can also be transferred to the survivor. This means that a couple passing on their property to their children could potentially have a nil rate band of £1m, made up of two allowances of £325,000 and two allowances of £175,000. This also applies to civil partners.
The residence nil rate band is tapered for estates worth more than £2m.
Can I put my house in a trust to avoid Inheritance Tax?
Putting property into a trust can reduce the amount of Inheritance Tax payable provided it is properly considered. Expert advice is essential as trusts can be complicated and it is important to ensure that the rules are followed and that using a trust is the best way of reducing Inheritance Tax in your particular circumstances.
A trust is not exempt from tax and will attract a charge of 20% payable when it is set up if it is in excess of the nil rate band.
Tax is also payable on each 10-year anniversary since the trust’s creation and on removal of assets from the trust.
Can I gift my house to my children?
If you give your property to your children during your lifetime, there are certain issues you should be aware of.
If you die within seven years of making the gift, Inheritance Tax will be payable on the value of the property.
You also need to be aware that if you have to go into care, then the local authority has the power to examine any substantial gifts you have made to assess whether they could be classed as a deliberate deprivation of assets, or an attempt to avoid paying care home fees. If they find that this has happened, they have the power to reverse the gift.
What is a gift with reservation of benefit?
If you give away an asset but continue to receive some benefit from it, such as income from a property that you have given away or the ability to stay in it, then this is classed as a gift with reservation of benefit. Because you have not entirely gifted the asset away, it will need to be valued along with the rest of your estate and the seven-year period does not apply.
This most often applies to a gift of your main residence to your children, if you continue reside in the property then it is unlikely to reduce your inheritance tax liability.
How much money can I give my children without incurring Inheritance Tax?
You can give £3,000 away each year without incurring Inheritance Tax. If you do not use this allowance, it can be carried forward, but only for one year.
You can also give smaller gifts of up to £250 each to individuals.
It is permissible to give £5,000 to a child on their wedding or £2,500 to a grandchild.
Above this threshold, a gift could incur Inheritance Tax on the above scale if you should die within seven years of giving it.
Do I need to declare cash gifts for Inheritance Tax?
You do not need to declare cash gifts to HM Revenue & Customs at the time they are made, but should you die within seven years, your personal representatives will be required to report them at that time.
If you do make a gift and survive beyond seven years, then the gift will be exempt from Inheritance Tax. This type of cash gift is known as a Potentially Exempt Transfer or PET.
Will Inheritance Tax be charged on gifts to charities?
If you leave money to charity, then it will not be counted towards the taxable total of your estate.
If you leave 10% or more of your estate to charity, then the Inheritance Tax on the rest of your estate is reduced to 36%. In some instances, this can mean that you can leave a generous gift to charity while only reducing the amount left to your beneficiaries by a modest amount.