Inheritance tax can significantly reduce the value of assets passed to the next generation. Find out how we can help you design an inheritance tax solution that meets your family’s goals now, it’s never too early.
Inheritance tax (IHT) can apply on the value of estates on death and certain life time gifts where the value transferred is in excess of nil rate band which is currently £325,000. IHT rates at death can be up to 40 per cent and 20 per cent on certain lifetime gifts. So, this can make significant impact on the value transferred to the next generation in the absence of any planning.
It is important because there are some very generous IHT reliefs available but in order to maximise these it’s vital that action is taken quickly.
It’s almost impossible to plan for an IHT event close to death and some assets require a minimum ownership period before relief can be available.
For example, business property relief can provide a 100 per cent exemption on some qualifying business assets but there is a minimum qualifying period of two years.
There are other qualifying conditions that need to be meet for business property relief to apply. So its important to keep an ongoing review of these to see if there are any actions that need to be taken so that the asset continues to qualify.
Another example is the residence nil rate band which provides an additional relief on top of the nil rate band. It applies where the main residence is transferred to direct descendants.
The residence nil rate band applies an additional amount of relief to the main nil rate band I mentioned earlier. It started from 6 April 2017 providing an additional £100,000 worth of relief which increases to £175,000 in the year to 5 April 2021. Because spouses and those in civil partnerships can transfer their unused nil rate band and residence nil rate band to the surviving spouse/civil partner. On the second death where the residence relief applies up to a million pounds can be transferred free of IHT. This relief is tapered where the value of the estate exceeds £2m. Therefore, it’s important to have a plan in place so that it can be preserved where appropriate. Nowadays it’s not unusual for people to have assets in both the UK and abroad. So it is important to have a coordinated approach when designing an IHT plan.
RSM has an international network known as RSM European IHT group. It specialises in providing bespoke solutions for those with assets in various European countries so please do get in touch with us if you think we can help.