A series of articles highlighting key areas that affect taxpayers and practitioners involved with inheritance tax and estates and identifying opportunities to mitigate inheritance tax.
 
Inheritance Tax & Estate Tax Planning
Overview
Inheritance tax and estate planning is an important tool to ensure that wealth is preserved for future generations.
The nature of the planning undertaken will depend on the type and value of assets in the estate as well as the overall objectives such as who is to benefit from the assets, degree of control and distribution of income.
Examples of inheritance tax and estate planning opportunities include:

  • Business Property Relief – up to 100% relief for the value of qualifying business interests, shareholdings and assets
  • Agricultural Property Relief – up to 100% relief for the value of qualifying land/property used for agricultural purposes
  • Woodlands Relief – up to 100% relief against the value of timber on the land, although a charge may subsequently arise if the timber is later sold
  • Gifts to charity
  • Making full use of allowances such as the annual allowance and gifts on marriage
  • Regular gifts out of income
  • Outright gifts to individuals/trusts
  • Trusts for vulnerable persons

Non-UK Domicile Tax Planning
Non-UK domiciled persons are usually only subject to inheritance tax on their UK situs assets, however where a person has been resident in the UK for 17 out of the last 20 tax years they are automatically deemed to be domiciled in the UK, potentially bringing their worldwide assets within the scope of UK inheritance tax.
However, where a person sets up an offshore trust to hold overseas assets whilst non-UK domiciled/deemed domiciled, the trust will be treated as excluded property and should remain outside the UK inheritance tax net.
In certain cases, it may be possible to restructure the ownership of assets to allow assets that would otherwise be treated as UK situs to qualify as excluded property. Although care will need to be taken, particularly where the recent changes to the stamp duty land tax rules are in point.
Inheritance tax and estate planning is a complex area and advice should be sought before any planning is undertaken.
Anti-Avoidance & Other Considerations
Where inheritance tax planning is to be utilised care should be taken to ensure that the planning does not fall foul of anti-avoidance legislation such as the rules for gifts with reservation of benefit, associated operations, pre-owned asset tax etc.
It will also be necessary to consider the potential impact of the proposed planning on other taxes such as capital gains tax, VAT, SDLT and relevant anti-avoidance rules such as the settlement provisions and transfer of assets abroad.
A further key consideration will be the commercial and practical aspects of the planning – in our experience bespoke advice that is tailored to the individual’s precise circumstances is more likely to achieve the desired result than one size fits all schemes.
 
 
 

A series of articles highlighting key areas that affect taxpayers and practitioners involved with inheritance tax and estates and identifying opportunities to mitigate inheritance tax.
 
Transfer to Spouse
 
The general rule is that transfers between spouses whether on death or during lifetime are normally exempt from inheritance tax.
 
However, where the gift is made by a UK domiciled person to a non UK domiciled person, the spousal exemption is currently limited to £55,000.
 
The Draft Finance Bill 2013 includes legislation that will increase the exempt amount to the amount of the nil rate band at the date of the transfer.
 
Thus increasing the amount that may be transferred free of inheritance tax to a non UK domiciled spouse from £380,000 (£325,000 + £55,000) to £650,000 (£325,000 + £325,000).
 
Furthermore, the non UK domiciled spouse will be able to elect to be treated as though they are UK domiciled for inheritance tax purposes. However, such an election will bring the entirety of the spouse’s estate into the UK inheritance tax net, therefore advice should be taken before an election is made.
 
These changes are expected to come into effect from 6 April 2013, although the precise wording of the legislation may change before the provisions are enacted into law.

A series of articles highlighting key areas that affect taxpayers and practitioners involved with inheritance tax and estates and identifying opportunities to mitigate inheritance tax.
 
Nil Rate Band
 
The amount that may be passed on to a person’s beneficiaries free of inheritance tax is determined by the nil rate band at the date of death.
 
The nil rate band for inheritance tax has been frozen at £325,000 per person since 2010.
 
The Chancellor announced in the Autumn Statement that the amount of the nil rate band will rise to £329,000 with effect from 6 April 2015.
 
Since October 2007 it has been possible to transfer the unused proportion of the nil rate band between spouses, although the benefit of this can only be realised on the death of the second person and not in respect of a lifetime transfer, such as a transfer to trust.
 
Where a person survives more than one spouse, the maximum amount of the nil rate that may be transferred is equivalent to one full nil rate band.
 
However, with careful tax planning, it may be possible for their combined estate to benefit from 3 full nil rate bands. Thus reducing the overall amount of inheritance tax payable.
 
Ideally inheritance tax planning such as this should be undertaken during lifetime through careful drafting of Wills, although it may also be possible to implement the planning post death through a deed of variation.

The First Tier Tribunal Inheritance Tax Case of Silber v HMRC looked at how a settlement of cash made between the beneficiaries of the deceased’s estate and the deceased’s sister should be treated for Inheritance Tax.

The sister challenged the will of the deceased and she was paid an out of court settlement of £400,000 by the beneficiaries.

The Beneficiaries claimed the £400,000 as a liability of the estate and thus a reduction in Inheritance Tax payable of £160,000 (£400,000 x 40%).

The Court held that the money paid was not a liability incurred by the deceased and thus wasn’t allowable for IHT relief.

The taxpayers’ case was not helped because of the fact that they did not turn up for the Tribunal hearing (even though they were expected) although there is little doubt that the tribunal reached the right conclusion anyway.

Eaves & Co are experienced in inheritance tax planning and compliance, please call if you have IHT concerns.

 

Inheritance Tax is a thorny subject for families and can affect couples with more than £650,000 of net wealth between them (2012/13 rates).

 For such couples planning to avoid inheritance tax is never easy because there is a balance to be achieved between maintaining a standard of living through the later years and giving assets to younger generations.

 It is never too early to start planning for IHT mitigation; but typically it would be sensible for the process to begin in the late 50s or 60s.

 It is important to understand that capital gains tax can often hamper planning for IHT and so succession planning in relation to property, shares and businesses is important if this is to be accounted for.

 The first stage of planning is to estimate a family’s current exposure to IHT and if this is material some initial ideas can be suggested. It will become clear to the family which ideas are practical and which are not, and then we can focus on the ones which have a chance of practical success.

For an initial consultation please call Eaves & Co on 0113 2443502 to arrange an appointment. We have much experience in this area of tax planning and testimonials are available on our website.