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Inheritance Tax Planning

Generally speaking inheritance tax applies to the estate of a person who has died.  Subject to some exceptions, there is no liability to pay if an estate has a value of £325,000 (the ‘nil rate band’) or if the estate or the chargeable assets in excess of the nil rate band are left to the deceased’s spouse or civil partner or to charity.

To the extent that the nil rate band is not fully utilised by the deceased then the unused proportion will be available to their surviving spouse or civil partner upon their subsequent death.

Not all assets held in an estate are chargeable to inheritance tax and, in particular certain business assets, such as shares in an unquoted trading company, and agricultural assets will be wholly or substantially exempt from inheritance tax.  The assets qualifying for exemption are specifically defined within the tax legislation and generally must be owned by the deceased for a period of two years prior to death to qualify for the relief.

Inheritance tax is payable at a rate of 40 percent in respect of chargeable assets held in the deceased’s estate in excess of the nil rate band available.  As such it can be a very costly tax.

An increased nil rate band which can effectively increase the overall nil rate band to £1 million per couple may be available in respect of estates containing a family home.  As with many reliefs this is subject to a number of strict conditions.

It is possible to undertake a number of lifetime inheritance tax planning strategies to try to reduce an individual’s death estate and pass assets to beneficiaries without incurring a tax charge.  However, any strategies will need to take capital gains tax into account as well as the individual’s living requirements.

A series of small lifetime exemptions can be applied in a concentrated manner to secure significant savings as part of a long term strategy whilst the use of a trust can also often be effective.

Freestone Jacobs are able to assist in reviewing will arrangements, lifetime inheritance tax planning and maximising the inheritance tax reliefs available on certain assets to tailor a short or long term plan to meet specific objectives.

For more information please contact us.

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