Inheritance tax (IHT) is sometimes called the avoidable tax because legitimate and acceptable forward tax planning can minimise liabilities.
Many people are unaware for example, that lifetime gifts of capital within the seven year period before death may still be taxable at death, along with the value of their assets at death, so early lifetime giving is a key option for those seeking to reduce their exposure to IHT. Realistically, for many this is a difficult option as their most valuable asset is likely to be the family home, which poses a significant problem in this context. Making an outright gift of the family home during lifetime is often neither desired nor practical, or can lead to unexpected tax liabilities if not correctly done. Unfortunately the retention of assets such as the family home until death means bigger tax bills.
Whilst the government has acted by introducing a new relief on death specifically for the family home in addition to the existing general IHT threshold this can still leave a sizeable tax bill. One issue is that the new relief has a number of conditions and to ensure the relief is obtained may require some planning.
New research suggests that many people are unaware of what even the basic IHT threshold is, and how it works let alone the new ‘residence relief’ or other planning opportunities. In other words they have no real idea of how much IHT will be payable on their death and how much would therefore be available for family or others inheriting. The reality is that by 2020/21 each individual will have up to a £500,000 threshold available before IHT is due if certain conditions are met and for spouses and registered civil partners their shared amount could be £1million. Other reliefs and planning mechanisms could further reduce IHT liabilities.
Regular and accurate advice about estate and inheritance tax planning options can thus be essential for clients to help mitigate the eventual liability at death. Any lifetime planning which involves the gift or other disposal of capital assets can also involve liability to capital gains tax, so specific advice and careful planning is always needed to ensure all tax effects are considered.
How we can help
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The course is led by Russell Cockburn, an experienced presenter for a number of professional training organisations on a variety of UK taxation topics throughout the UK.