Here are Inheritance Tax planning tips for the tax year end which should be implemented before the end of the tax year otherwise they risk being lost altogether.
Why consider Inheritance Tax planning?
Tax planning provides an opportunity to pass assets to the next generation in the most tax efficient manner.
Each individual has an Inheritance Tax free allowance known as the Nil Rate Band - subject to some exceptions. Any assets held by you in excess of the Nil Rate Band are taxed at a rate of 40% on your death. The Nil Rate Band is currently £325,000 and is to remain at this level until at least 2014/15. However, the transferable Nil Rate Band now provides a maximum Nil Rate Band (on the basis of current figures) between couples of £650,000.
Although the transferable Nil Rate Band brings many couples outwith the scope of Inheritance Tax, there are still plenty of tax planning opportunities which could, and should, be utilised before the end of the tax year.
What should I be doing?
Whether Inheritance Tax planning is appropriate for you will depend on your own needs and circumstances. However, some simple steps that everyone should be aware of are:-
- Annual gifting exemption - allows you to gift up to £3,000 in each tax year which will not be liable to Inheritance Tax on your death. The exemption can be carried forward to the following tax year, but no further - so if you didn't use your gifting exemption last year, you should be thinking about gifting £6,000 before the end of this tax year to avoid losing the exemption.
- Small gifts exemption - allows you to gift up to £250 to any number of beneficiaries. The small gifts exemption does not eat into your annual gifting exemption, provided the gifts to particular individuals do not exceed £250.
- Regular gifts from excess income - if you find that you are accumulating income and increasing the assets in your estate which may ultimately be subject to Inheritance Tax, you should consider making regular gifts from your income. HMRC enforce the rules for this exemption rigorously and the gifts must be from excess income and regular to qualify.
If you are interested in what inheritance tax planning tips may be appropriate for you, please contact our experienced team.