The standard Inheritance Tax rate is 40 percent. This may apply on the value of an estate which is greater than a certain threshold. This threshold is usually £325,000, however there are ways in which one can increase their threshold. Some may look at ways in which they can legally reduce their Inheritance Tax when it comes to tax planning.
“By leaving the entire estate to a spouse or civil partner, you can ensure that no Inheritance Tax is payable when you pass away.”
However, the tax partner highlighted how this act didn’t mean Inheritance Tax would never be payable on the estate.
He said: “Word of warning – this sounds highly advantageous, but it is only a tax deferral. When your surviving spouse or civil partner passes away, their estate will become taxable (to the extent it exceeds the nil rate band).”
Main residence nil rate band
Mr Scott continued: “An inheritance tax exemption known as the “main residence nil rate band” can relieve significant value from your estate, however a number of conditions must be met.
“The ‘main residence nil rate band’ currently offers an additional £150,000 nil rate band, which can be offset against the family home.
“This will increase to £175,000 in April 2020. After that date, it will increase annually by the consumer price index.”
Business Property Relief
“A valuable relief from IHT, known as Business Property Relief (‘BPR’) can be claimed on shares of companies that are involved in ‘business activities’ where the shares have been held for at least two years.
“Tax and investment planning can be used to invest in BPR qualifying investments.”
Agricultural Property Relief
“Agricultural Property Relief (“APR”) is available for assets used in agricultural businesses.
“This would include agricultural land or pasture, alongside associated woodland, agricultural buildings, farmhouses and farm cottages.”
“Shares held in unquoted trading companies are free from inheritance tax once held for two years. This can provide a low risk inheritance tax planning strategy, with the potential for commercial return.
Lifetime transfers and gifts
“Up to £3,000 may be given by an individual without an IHT charge, and this can allowance can be carried forward for one year.
“On top of your £3,000 allowance, small gifts not exceeding £250 per tax year per recipient are exempt.
“You can make a gift of £250 to any number of people in any given year. Wedding gifts up to the value of £5,000 may be made by a parent, with lower limits for others (£2,500 for grandparents and £1,000 for others).
“Gifts to individuals that do not qualify for the above exemptions are treated as potentially exempt transfers.
“Potentially exempt transfers reduce the value of the chargeable estate and do not suffer a charge to IHT provided that the donor survives seven years from the date of the gift.”