UK Inheritance Tax

UK Inheritance tax is levied on the dutiable world-wide estate of every individual domiciled in the UK with an estate of over £325,000. The Chancellor of the Exchequer has stated he plans to freeze this threshold (commonly called “the Nil Rate Band”) until 2015. Transfers between spouses domiciled within the UK have an unlimited exemption, including on death: so a surviving spouse domiciled within the UK does not have to pay UK Inheritance Tax on the first death. If the surviving spouse is domiciled outside the UK, the aggregate of the exemption is presently limited to £55,000. (Ask us for further information if this applies to you, as there are special provisions regarding the definition of domicile for Inheritance Tax purposes.) Despite some misconceptions, unmarried couples, even with children, do not receive any of the special privileges married couples enjoy under Inheritance Tax law.

We encourage those clients able to do so, to use their annual Inheritance Tax exemption (currently £3,000). Putting the gift into a tax-free wrapper can be a great way of getting double tax relief. If someone in the family is getting married, ask us about the extra gifts you can make without incurring Inheritance Tax.

Regular gifts from surplus income form a useful, but rarely used, exemption in the UK Inheritance Tax rules. These payments have to be regular and they must not be deemed to be made from capital. We can explain in greater detail if this interests you.

Even larger transfers can still avoid UK Inheritance Tax if they qualify under the potentially exempt transfer rules (often called a “PET”). Briefly, the transfer must qualify and the donor must survive seven years. The gifted property must be a bona fide gift and it must be enjoyed by the recipient to the entire exclusion (or virtually to the entire exclusion) of the donor and the donor must not derive any benefit from his gift. After the 3rd year, the Inheritance Tax the government takes falls each year until it becomes tax-free at the end of the 7th year. Gift Inter Vivos (GIV) can insure against the risk of dying within the 7 years. The insurance provides the funds required to pay any Inheritance Tax, so protecting your family and residuary beneficiaries. If you are giving a house or flat, this can be especially important, as the GIV means that the recipient does not have to sell the property or take out a large mortgage to pay Inheritance Tax. The GIV policy can be written under a trust to further mitigate the impact of UK Inheritance Tax.

If your estate is over the Inheritance Tax threshold and you would like to plan to mitigate the amount your beneficiaries will have to pay, take advantage of our free initial appointment and free bespoke financial plan. Even if you live in a completely different part of the country, we are pioneering SKYPE conferencing for IFA meetings. All it will cost is a little bit of your time. Give us a try. Call us now to book an appointment to start the process. It is your first step to a brighter future for your family.