Family wealth transfer is all about ensuring that your family wealth passes into the right hands at the right time, with minimum liability to inheritance tax. We provide effective estate planning solutions; expert guidance, and the sort of support that helps you to make the right decisions. We offer you all round estate planning support and can help you with trusts, investment guidance for trustees and family wealth planning.
In the event of death each individual has an allowance of assets which can be passed down to their beneficiaries without any tax to pay. This inheritance tax allowance is known as your nil rate band and is currently £325,000. Over and above this amount tax is payable to the Government for any assets passed on unless the assets have been covered by use of the exemption rules or careful forward planning. Effective inheritance tax planning can ensure that in the event of your death you have passed on as much of your estate as possible to those people you wished to benefit.
The family home is often the most valuable item passed on when someone dies. It is usually preferable to use other assets for Inheritance Tax Planning but this is not always possible. We can help you to consider different options you should consider when looking to pass on your assets, including your family home, either during lifetime or on death.
The new residence nil rate band could increase the inheritance you can leave your children by up to £100,000 from April, rising to £175,000 by 2020. This means that for a husband and wife they have an additional £200,000 NRB.
To benefit from this additional amount, the family home must pass to direct descendants – that is, children or grandchildren. And to be entitled to the full amount, clients will need to keep the value of their individual estates below £2M. Beyond this, the allowance will be tapered, and lost altogether once values pitch beyond £2.35M. But there are planning strategies that may help some clients stay below the taper threshold, including lifetime gifting made at any time.
The residence nil rate band is in addition to the standard nil rate band, which will remain frozen at £325,000 until April 2021. The additional amount will be phased in starting at £100,000 and increasing by £25,000 a year until it reaches £175,000 in April 2020.
These are the maximum amounts. The available allowance will be reduced if the value of the property is less than this, or if the value of an individual’s estate exceeds £2M.
Just like the standard rate band, the residence nil rate band will also be transferable between spouses and civil partners on death. So the allowance is not lost if the family home passes to the survivor on first death. This could mean if the second spouse dies after April 2020, a couple could benefit from a combined nil rate band of £1M (2 x £325,000 plus 2 x £175,000).
It also doesn’t matter when the first spouse died or even if they owned a property at all. The first spouse may have died many years before the introduction of the RNRB and the property held in the sole name of the survivor. Even so there will still be allowance which can be transferred to the surviving spouse.
For further information please contact AJ Wealth Management Ltd.
Some transfers apply both during your lifetime or on death:
- Gifts between UK domiciled spouses and civil partners. Special rules apply if the gift is from a UK domiciled to a non-domiciled spouse;
- Gifts to charities and political parties;
- Gifts for national benefit, such as to museums, universities, libraries or the National Trust.
Other transfers must be made during your lifetime only.
Everyone has an annual gift exemption for gifts up to £3000 each year.
It is possible for individuals with excess income to make regular gifts, outright or into trust, in excess of the £3,000 annual gift exemption.
The normal expenditure out of income exemption allows the donor to make a series of IHT effective gifts from surplus income which are in excess of the £3000 annual gift exemption. There is no monetary limit to this exemption so the size of the exempt gift is only limited by the amount of the donor’s surplus income.
This can be done in various ways and we can help to advise on the use of trusts, regular contribution contracts, single annual investments or payments. It is vitally important that these payments qualify as being paid from normal expenditure and are recorded correctly so that evidence is available to show to HMRC on death.
Business property relief (BPR) is available for transfers of business property during life or on death. The relief reduces the value for IHT of the business asset transferred. The business property must usually have been owned throughout the two years prior to the transfer. BPR is given at different rates depending on the asset.
Agricultural property relief (APR) maybe available for transfers of relevant property made either during life or on death. The relief is usually given at a rate of 100% of the value of the asset (with no monetary limit) but may only be at 50% if the agricultural property was rented out before 1 September 1995.
Inheritance tax taper relief may reduce the amount of inheritance tax payable on lifetime gifts where:
- Death occurs between three and seven years from the date of the gift; and
- The value of the gift when added to any previous chargeable transfers in the previous seven years, exceeds the nil rate band in the year of death.
Any lifetime transfers made within the seven years of death will have first use of the Nil Rate Band before the rest of the estate.