The former Chancellor, Roy Jenkins, once described inheritance tax as “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.
The principle holds true today: many options remain to save inheritance tax and thereby maximise the value to be passed down to one’s intended beneficiaries such as children and grandchildren.
In essence, inheritance tax is charged on the value of an individual’s death estate at 40% and at 20% on certain lifetime transfers. Various reliefs and exemptions apply. Each individual has a standard “nil rate band” (currently £325,000) which is charged at 0%.
Between 2016 and 2017 the Government’s annual take from inheritance tax increased by 9% to over £5 billion. Higher property values and increasing stock market values will have played a part but HMRC have become more vigorous, and indeed aggressive, in collecting the tax.
Main developments since 2007
The legislation has been fairly stable over the last 10 years with the key changes being tax relieving measures as follows: -
• In 2007, the standard nil rate band was made transferable between married couples and civil partners;
• In 2012 a 36% rate of inheritance tax was introduced where the deceased leaves 10% of his or her net estate to charity;
• In 2017 a new residence nil rate band (“RNRB”) was introduced where the deceased leaves a residence in the will to a direct descendant such as a child or grandchild. The RNRB is £100,000 and increases to £175,000 by 2020. It is transferable between spouses but is tapered for estates exceeding £2m.
Given the above, by 2020 a married couple or civil partners could be entitled to total nil rate bands of as much as £1m.
Key planning techniques
Tried and tested planning techniques include making lifetime gifts (either absolutely or into trust), investment into assets qualifying for 100% Business Property Relief (“BPR”) or Agricultural Property Relief (“APR”), or utilising the exemptions for one off and regular gifts.
Possible changes in the Budget?
With the Budget on 22 November, I fear that Philip Hammond may take the view that the inheritance tax legislation is ripe for reform. BPR and APR are expensive reliefs for the Treasury to administer so it may be that BPR on AIM quoted shares is abolished, or APR on let farmland is restricted. Affected individuals should take advice, and consider the options available.
For more advice on Inheritance Tax or a free consultation, please don't hesitate to contact me.
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