Inheritance Tax - How to ensure your family benefit from your hard work, rather than HMRC
Record numbers of inheritance tax is being collected by HMRC each year. It astonishes me when I meet business owners or individuals with no will in place or any inheritance tax planning.
Why has lack of inheritance tax planning become an increasing problem?
Over the last 10 years, inheritance tax (IHT) planning has always been one of the key topics of conversations when we meet business owners, but why is the lack of any planning becoming an increasing problem?
1. It’s difficult and emotional to openly discuss:
· Hard and deep conversations are required
· Discussing feelings, wishes, and personal goals
· Individuals need to consider the expectations of their family and business partners
· Everyone needs to be on the same page before the transition can begin
As a result, individuals tend to ‘bury their head in the sand’ when it comes to IHT planning as it’s easier to do nothing.
2. Increasing property prices over the last 15 years have meant that a growing number of individuals now require some planning.
3. Baby Boomers (the generation born between 1946 and 1964) are now at the stage of their life when they are considering passing down assets or businesses to the next generation. It is estimated that baby boomers account for anywhere between 20% to 25% of the UK population, therefore, we are in a period when key decisions are being made.
4. Lack of understanding – Individuals and business owners typically do not understand the basics of IHT and are not aware of how much their assets, businesses or estates are worth. Both reasons tend to result in individuals being surprised that they require IHT planning.
What can be done?
1. Understand what your estate is worth – It sounds simple but make a list of your assets, businesses and trusts etc. and know the value of these in your estate
2. Get a will in place and keep it up to date – Ensure your will directs your estate tax efficiently, for example to a spouse or civil partner and regularly review your will if/and when circumstances change (both personal and legislative
3. Lifetime gifts – consider potentially exempt transfers where assets can be gifted and if the individual survives more then 7 years the assets will be IHT free (relief will be tapered if the individual does not survive 7 years. Care is needed here as it’s the tax that tapers not the value of the gift)
4. Make use of the annual exemption available
5. Make use of the “normal expenditure out of income” relief for lifetime giving
6. Gifts to charities – If 10% of the estate is left to charity, IHT is reduced to 36%.
7. Trusts – Consider using trusts to plan passing assets down the generations
8. Pensions – Although a complex area, consider using pension schemes to pass wealth down to generations
9. Insurance – Consider life insurance with trusts to pay for any potential IHT and protect the wealth that can be passed down to future generations.
Overall, it’s best to be proactive. Individuals and business owners should address any IHT planning sooner rather than later, as it will give them more options to plan for a better future for the next generation.
If you need any help with IHT Planning or similar don't hesitate to get in touch with us today on 020 8551 7200, or e-mail us at firstname.lastname@example.org