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1st November 2013

Inheritance Tax Planning Factsheet

Inheritance Tax (IHT) is charged on a person’s estate at death and, in some circumstances, on lifetime
gifts. The tax is payable at a rate of 40% on the value of assets over and above the ‘nil rate band’,
which is currently set at £325,000.

Most transfers between spouses (and civil partners) are exempt, so there will be no IHT if you leave
everything to your wife or husband. Changes to the IHT legislation under the last government mean that
surviving spouses or civil partners can have the benefit of their deceased partners’ unused nil rate band
so there is potentially up to £650,000 available to set off against the combined estate. However, it is
surprising how easily a house, some investments and pension or life cover can push the taxable value
over even this higher threshold. Once that is exceeded, the 40% tax rate can leave the next generation
with a very high tax bill.

Rix & Kay’s tips for reducing IHT:

The simplest way to save IHT is to give away assets and survive seven years. Gifts of cash are
straightforward, but gifts of other assets, such as properties or investments, can raise capital gains
tax (CGT) issues which must be considered.

If you want to give assets away, say to your children, but retain management control then
consider using trusts or other structures such as Limited Liability Partnerships and investment

There is a £3,000 annual exemption for gifts out of capital and you can carry forward any unused
exemption from the previous tax year. Married couples each have their own annual exemptions so
there is scope for additional savings there.

Surplus income can often be given away tax-free. Provided the conditions for relief are met, quite
large sums can be transferred without IHT consequences by those who are lucky enough to have
unused disposable income.

Consider meeting any IHT liability with an insurance policy, written in trust. Although this
does not reduce IHT, it does provide your heirs with the means to pay it.

Make sure that all your existing life policies, death in service benefits and pension policies
are written in trust so as to avoid their being taxed on either your or your partner’s death.

If you own a business or a farm there are very generous IHT reliefs potentially available,
but there are conditions to be met and you must have the right legal structures in place to
take advantage of them.

Gifts to charities are exempt without limit so don’t forget your favorite causes!

We are happy to work with your independent financial advisers on investment related
solutions such as:

  • Discounted Gift Trusts – providing immediate IHT savings, tax-free capital growth
    (although no access to capital) and a regular income stream.
  • Loan Trusts & Wealth Preservation Bonds – providing gradual IHT savings, a regular
    income stream and the ability to access your capital outlay.
  • Business Property Relief Investment Schemes – these can offer IHT savings after two
    years, return of capital at any time and the ability to diversify your assets. (These
    schemes do not have to involve a high degree of investment risk.)

Finally, and most importantly: make sure you have an up to date, well-drafted will. There is not much point in saving IHT if your estate does not go to the right people and at
the right time!

We have a large team of experienced lawyers who can help with all these issues. We start by
gaining a full understanding of both your finances and your family so that we can create the best
possible solutions for you. Many of these solutions lie in legal structures such as wills, trusts,
partnerships and companies which need to be carefully constructed so that they will stand the
test of time and cover changing family circumstances and tax legislation over the years. Our
aim is simple: to use our knowledge and expertise to help you pass your hard earned wealth
down to the next generation at the minimum tax cost to them.

For more information please contact Max Wright or Ian Best.


You can download this information here: Inheritance Tax Planning Factsheet

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