It is reported that there has been an increase in the number of families facing an inheritance tax bill on the death of a loved one. The government has frozen the inheritance tax threshold until at least 5 April 2015 and so it is expected that inheritance tax will continue to affect more and more people over the coming years.
Currently, each individual has an inheritance tax allowance of £325,000, with married couples and those having formed a civil partnership having an allowance of £650,000. Estates with a value under the current threshold are not subject to inheritance tax whereas those exceeding the inheritance tax allowance (subject to some exemptions) will pay inheritance tax at the rate of 40% on any value in excess of the inheritance tax allowance.
It is possible to reduce your inheritance tax liability by making gifts during your lifetime or by making gifts to charities when you die. However, if you decide to make a lifetime gift you will have to live for a further 7 years in order for that gift to be outside of your estate for inheritance tax purposes. If you make a lifetime gift of any asset (other than cash) it is important that you also consider any capital gains tax implications.
There are also allowances available in respect of any lifetime gifts that you make. Each individual is allowed to give away £3,000 per financial year without there being any inheritance tax implications. Additionally, if you have not used last years allowance you are able make to use of that. Unfortunately you are not able to go back more than one financial year to make use of unused allowances. This means that if you haven’t made any gifts in the current and previous financial years you can give away £6,000 now, before 5 April 2014. You will then be entitled to make a further gift of £3,000 on 6 April 2014. A reduction in the value of your estate by £9,000 can save your family £3,600 in inheritance tax when you die.
If you have any concerns about inheritance tax or would like further advice in relation to inheritance tax planning, please contact a member of our specialist team.