Tax Tip #8 REVIEW YOUR ESTATE AND INHERITANCE TAX
Inheritance tax (IHT) is a growing problem. Indeed, the amount of inheritance tax paid has increased by 60% between 2009/10 and 2014/15.
In general, IHT is payable on the chargeable value of your estate above the nil rate band, currently £325,000.
Before you do anything else, you should sit down with a professional to review the value of your estate and the anticipated value in the future.
There are a number of different strategies available to reduce IHT, including investing in assets that qualify for 100% relief from IHT after 2 years (Business Property Relief – BPR) and gifting assets. With some planning, you may even be able to move your pension pot outside your estate.
Three specific annual exemptions that you should consider before the end of the tax year are:
The Annual Exemption
It is possible to gift £3,000 free of IHT each year. Additionally, you can carry forward any unused part of this £3,000 exemption that has not been used to the following tax year, once the current year’s exemption has been exhausted. This means a gift of up to £6,000 (£12,000 for a couple) can be put outside your estate for IHT purposes, if you didn’t use the exemption last year.
The Small Gifts Exemption
This exemption allows you to gift £250 per tax year free of IHT to as many people as you want, providing they do not also receive any part of the £3,000 exempt amount.
The Normal Expenditure Exemption
The normal expenditure exemption is probably the most valuable annual IHT exemption. This exemption allows any gift that you make on a regular basis, that is out of income (not from capital), to be exempt from IHT, providing it does not reduce your standard of living. There are no cash limits to this exemption, providing the provisions are met.