Make the most of IHT reliefs while they're still available.
Following its recent review of tax reliefs the Office of Tax Simplification recommended a full-scale review of IHT rather than a piecemeal review of individual IHT reliefs.
The Government's response indicated that no further changes to IHT are planned for the foreseeable future, although this subject may be revisited at some point later on. It is important then that you make use of IHT reliefs while they're still available. Use the following checklist to help you.
- Write a will and review it regularly
Without a will, all your assets will pass to surviving relatives (or, in certain circumstances, the Crown), in accordance with fixed rules which may not coincide with your wishes nor give a tax-efficient result. If you have made a will, it is crucial that you review it regularly and keep it up to date. - Make potentially exempt transfers
A potentially exempt transfer can include cash, property or any other asset. There is no upper limit on the value and it can go to family or friends. You must live for seven years after making the gift for it to be fully exempt for IHT purposes, although after three years the IHT liability on amounts over the nil-rate band starts to reduce. You cannot retain any benefit in the gift and capital gains tax may be charged on any gifts other than cash. - Give away annual gifts
You can give away £3,000 a year of capital. If you miss one year, you can give away £6,000 the following year. You can also make small annual gifts of £250 a year to an unlimited number of people, provided these payments do not form part of a larger gift. - Celebrate in style
An allowance is available for a wedding gift of up to £5,000 from parent to child, while up to £2,500 can be given by a grandparent or great-grandparent to his or her grandchild or great-grandchild. Wedding gifts of up to £1,000 can be made to anyone else who is getting married. - Make gifts of normal expenditure
Regular gifts from income can be made for an unlimited amount, as long as it can be proven that gifts are made regularly and are from surplus income. You do not have to live for seven years after making the gift for it to be exempt from IHT. This exemption is ideal for grandparents willing to pay their grandchildren's school fees. - Consider charitable legacies
The Government is to introduce a lower rate of IHT on deaths on or after 6 April 2012 where people leave a charitable legacy of 10% or more of their net estate (after deducting reliefs, exemptions and the nil-rate band).
Other IHT reliefs include business property relief and agricultural property relief. These valuable reliefs are available on certain business assets and agricultural property and, in these cases, care should be taken to ensure that the stringent tests are met.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
