Inheritance Tax (IHT) arises when an individual dies and leaves an estate to beneficiaries.
IHT is payable on the value of an estate in excess of the nil rate band (set by the government each year) after excluding exempt bequests, including those bequeathed to the surviving spouse or civil partner. In addition, some assets given away by the deceased person within seven years of death may need to be brought back into the estate.
The calculation of the value of the deceased person’s estate includes all assets (or share thereof) owned by the deceased person including the matrimonial home. The nil rate band may seem substantial, however the matrimonial home by itself could account for a significant proportion of the deceased’s estate and push the value well over the nil rate band.
An additional concern is that the Government has announced that the nil rate band is likely to remain at its current level, with no inflationary increase planned. As property and other asset values are likely to continue to increase, this means that more individuals will be caught by IHT, particularly in London and the South of England.
There is some good news!
All transfers to a surviving spouse or civil partner are exempt from IHT, as are any other transfers made more than seven years prior to date of death and certain other bequests such as qualifying business property. In addition, a surviving spouse or civil partner “inherits” the unused portion of the first deceased’s nil rate band. This means that it is no longer necessary to deal with nil rate band transfers in Wills. Any Wills that include this provision may need to be reviewed.
For unmarried couples, transfers to the surviving partner are not exempt from IHT. If the value of the couple’s estate exceeds the nil rate band, tax planning advice should be sought as IHT may well be payable.
A simple planning approach is to ensure that ownership of assets is carefully structured to ensure maximum tax efficiency, particularly for unmarried couples, although this needs to be carefully co-ordinated with capital gains tax. Other planning opportunities exist, which are of increasing complexity depending on the value and type of assets at risk.
The entire area of estate planning can be sensitive and difficult to discuss. However, as always, planning is best tackled as soon as possible. If you have not considered inheritance tax, or have not reviewed your will for some time, we recommend that you should do so without delay. We are experienced at working with legal advisers in this area.
If you require advice or would like to discuss how we might assist you, please do not hesitate to contact us.