Probably as a result of the steady increase in property prices, there are more and more people who are being affected by inheritance tax. However, it is possible to lessen its impact by having a correctly written Will and/or following informed advice that can be given in the course of making a Will. MCP’s team of wills and probate lawyers have the knowledge and the skill to help you with this complex area.
Will I have to pay inheritance tax?
Individuals, in the 2015/16 tax year have a tax free inheritance tax allowance of £325,000.00. A married couple have double that amount ie, £650,000.00. The excess (after deducting debts and expenses such as funeral costs) is chargeable to inheritance tax at a rate of 40%. Inheritance tax liability can be reduced by careful lifetime planning and/or gifts to a spouse and/or charities.
But I have heard the rules are changing?
In the 2015 summer budget, the government announced a new transferable main residence allowance. From April 2017 the government is introducing a new, additional, tax free allowance which will eventually be worth an additional £175,000.00 per person. Therefore, from April 2020, the eventual tax free allowance, if full advantage is taken of the family home allowance, will be £500,000.00 per individual or £1 Million for couples. For estates that are worth more than £2 Million however a proportion of the family home allowance will be lost.
So what can be done to avoid/reduce inheritance tax liability?
With the changes mentioned above, fewer estates will be liable for inheritance tax. For those where this might still be a concern then it is important to explore measures such as making annual gifts, making gifts out of income, about which MCP are very prepared to advise.
I have read that a will trust or asset protection trust might be useful in saving inheritance tax liability. Is that true?
Firstly, trusts do have their uses both for inheritance tax planning and also to give a much greater degree of control than an outright gift of assets. Against that, however, it may not be possible to take full advantage of the transferable main residence allowance referred to above and trusts can sometimes be expensive, demanding in terms of administration and, frankly, sometimes really quite difficult to understand. By no means do they suit everyone and it is important that informed and qualified advice is given before any decision is taken.
For more information about inheritance tax and probate matters please contact our wills and probate team.