Inheritance tax explained (30/08/18 )
Inheritance tax explained by the experts
Inheritance tax is something more of us are having to pay, as inflation and asset growth push many across the nil-rate threshold.
For most people, working out your inheritance tax allowance is fairly simple, but what about those of us with more than £2million in assets, with more complicated financial affairs, or who have already passed their house on to the next generation?
We go through the basics and illustrate how a more bespoke service can make the difference for high net worth clients.
How to work out your inheritance tax allowance.
The inheritance tax threshold, or nil rate band, is at the time of writing £325,000, which means that you won’t pay any tax if your estate is worth less than that amount. Leaving some or all of your estate to your spouse or civil partner, a charity or a community amateur sports club will determine how much of your estate exceeds this nil rate band. In addition to this there is a residence nil rate band, which is an allowance currently of £125,000 that is available under certain circumstances on the value of your house.
What is the inheritance tax threshold?
If your estate is worth more than the current inheritance tax threshold, then the part of your estate that’s above the inheritance tax limit may be charged at 40%. For example, if your estate is worth £725,000 then the Inheritance Tax charged would in most circumstances be 40% of £400,000, or less if you own and live in your house. If you gave away your home to your children or grandchildren then the inheritance tax on property would depend on when the gift, or potentially exempt transfer, was made.
Inheritance tax for high net worth clients.
Where IhT can become more complex is for those in the higher bracket of assets and income. There are many legal ways to avoid or reduce inheritance tax, and it is never too early to seek advice about managing your estate more effectively.
At Maunby we take a broader approach to asset and wealth management, which includes estate and capital gains tax planning. We consider inheritance tax to be a very personal matter with no one approach fitting any two clients, which demands a flexible approach from the outset.
Some of our clients are content to make gifts, whilst others may wish to maintain control of their assets to ensure they are not reliant on the next generation should government policy or their needs change. Of course, tax treatment depends on an individual’s circumstances and may be subject to change, and in some cases additional specialist advice may be necessary.
Are there ways I can reduce my inheritance tax liability?
Many of our clients are putting plans in place to reduce any future inheritance tax liability, ranging from more complex trusts involving input from a solicitor, to portfolios investing in qualifying shares listed on the Alternative Investment Market (AIM) which benefit from inheritance tax relief. Some have used trusts and inter-spousal transfers to move assets out of their estate in addition to investments that benefit from inheritance tax relief. Flexible solutions can allow access to and control of these assets, and we avoid rigid solutions wherever possible.
While we try to mitigate potential losses as far as possible through careful stock selection and diversification of companies and sectors, investments of all types put your capital at risk and AIM stocks are no exception. We therefore aim to ensure all of our clients are comfortable with the level of exposure they have, and that it fits in with their broader wealth management. It is after all your money, something some firms seem to forget at times.
Please note, by using Maunby’s services your capital may be at risk. Tax treatment depends on an individual’s circumstances and may be subject to change in the future.