At Brown Shipley, we understand that navigating this complex area requires both expertise and a personalised approach. By planning ahead, you can ensure that your wealth is transferred to your loved ones with minimal tax implications while preserving your financial security during your lifetime.
What is inheritance tax?
Inheritance tax (IHT) is a tax on the estate of someone who has passed away, including their property, money, and possessions. In the UK, inheritance tax is charged at a standard rate of 40% on the portion of an estate exceeding the nil-rate band threshold, currently set at £325,000. However, this threshold can vary depending on specific exemptions and reliefs, which we will explore in detail.
Key facts about inheritance tax
- Nil-rate band: Up to £325,000 is tax-free for each individual.
- Residence nil-rate band (RNRB): An additional £175,000 each can apply if you pass your family home to direct descendants.
- Transferable allowances: Any unused portion of a spouse’s nil-rate band can be transferred to the surviving partner.
At Brown Shipley, we help you navigate these allowances to ensure you make the most of the available reliefs and exemptions.
The impact of inheritance tax on wealth transfer
Inheritance tax has the potential to significantly reduce the value of the wealth you pass on to your heirs. For our clients, careful planning is essential to minimise this impact and to help secure your legacy. Here are some common challenges:
Challenges of inheritance tax:
1. Erosion of wealth: Without proper planning, inheritance tax can reduce the value of your estate by up to 40%, leaving less for your loved ones.
2. Complex regulations: The rules surrounding inheritance tax are intricate and subject to change, requiring expert guidance.
3. Family disputes: Poor planning can lead to misunderstandings or disputes among beneficiaries.
By addressing these challenges with a bespoke plan, we ensure your wealth is distributed according to your wishes while minimising tax liabilities.
Strategies to mitigate inheritance tax
At Brown Shipley, we employ a range of strategies to help our clients manage and reduce their inheritance tax liabilities. Here are some key approaches:
1. Use of gifting
One of the simplest ways to reduce your estate’s value is by making gifts during your lifetime. Key rules include:
- Annual exemption: You can give away up to £3,000 per year tax-free.
- Small gifts: Unlimited gifts of up to £250 per person annually are exempt.
- Seven-year rule: Gifts made more than seven years before your death are exempt from inheritance tax.
Gifting not only reduces your taxable estate but can also provide immense satisfaction as you see your loved ones benefit from your generosity.
2. Trusts for long-term planning
Trusts are powerful tools for managing the transfer of wealth. By placing assets in a trust, you can:
- Reduce the value of your estate for inheritance tax purposes.
- Retain control over how and when your wealth is distributed.
- Provide financial security for future generations.
We work closely with you to establish the most suitable trust arrangements based on your family’s needs.
3. Life insurance policies
Life insurance can be an effective way to cover potential inheritance tax liabilities. By writing the policy in trust, the proceeds can be paid directly to your beneficiaries, providing them with the funds to settle the tax bill without depleting the estate.
4. Leveraging business relief
For business owners, certain assets may qualify for business relief (BR), which can reduce the taxable value of your estate. Eligible assets include:
• Shares in an unlisted company.
• Agricultural land or property used for business purposes.
Our advisors can help you structure your business holdings to maximise the available reliefs.
5. Charitable donations
Leaving a portion of your estate to charity not only supports causes close to your heart but also reduces your inheritance tax rate. If you donate at least 10% of your estate to charity, the tax rate on the remainder drops from 40% to 36%.
How Brown Shipley can help?
At Brown Shipley, we take a holistic approach to inheritance tax planning, ensuring that every aspect of your financial situation is considered. Here’s how we support you:
Personalised advice
We begin by understanding your personal circumstances, financial goals, and family dynamics. This enables us to tailor a strategy that aligns with your unique needs.
Expert guidance
Our team of seasoned professionals brings a wealth of experience in inheritance tax planning, trust management, and wealth structuring. With access to global expertise through our parent company, Quintet, we deliver innovative solutions.
Proactive reviews
Tax regulations and personal circumstances can change over time. We regularly review your plan to ensure it remains effective and up-to-date.
Start planning today
Inheritance tax planning is a vital component of securing your financial legacy. By acting now, you can:
- Secure your legacy for the future,
- Gain peace of mind knowing your loved ones are provided for.
- Reduce tax liabilities through strategic planning.
Important Information
- Investing puts your capital at risk.
- The value of your investments or any income from them can go down as well as up, and you could lose some or all of the money.
- Tax treatment depends on individual circumstances and is subject to change.
- Tax planning is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.