Currently, in order to calculate the amount of any inheritance tax due for a specific period charge, trustees must give the historic value of any other property in a trust which was set up at the same time as the trust concerned. They must also give the historic value of any chargeable transfers made within seven years before the relevant trust was set up.
This complicated endeavour is made even more difficult when the trustee is also expected to submit:
• the current value of the property in trust
• the value of any transfer of relevant property out of the trust during the last ten years, along with dates
• the value of any transfer of relevant property into the trust during the last ten years, along with dates
• the historic value of any property that is not relevant, within the trust
Instead, HMRC has stated in its proposals that any previous lifetime transfers will be ignored, when determining the nil-rate band for transfers on exit charges and 10 year anniversary charges.
It also proposes to ignore non-relevant property, with the nil-rate band being split by the number of relevant property settlements made. Tax will then be charged at a rate of six percent of the chargeable transfer.
Despite the suspected economic recession, rise in living costs and freeze on salaries, most of us are still able to retain our homes and assets which means that a high percentage of people will find that they have assets which have pushed them over the Inheritance Tax threshold of £325,000.
If you suspect that this is the case with your Estate (bearing in mind, the value of your home will also be taken into account), then there are ways to bring you back within the threshold, if you act now to prevent the tax man taking 40% of the value of your Estate.
Your first task should be to prepare a Will, if you haven’t done so already. If you’ve had a simple Will prepared without having planned specifically to reduce Inheritance Tax liability, have it looked at again.
It is worth noting that transfers between spouses and formally recognised civil partners are recognised as being exempt, known as the IHT nil-rate band. This means that when the first partner dies, their entire Estate can be transferred to the surviving spouse, without any Inheritance Tax being charged. When the survivor themselves die, any nil-rate band not used when the first partner died, can be claimed.
If you own a business, your next of kin may be able to claim Business Property Relief upon your death. This could mean that if you pass your business assets onto your children, they could claim IHT exemption for up to 100% of the value of your entire business assets.
There are a number of ways to plan effectively to reduce your Inheritance Tax liability simply by planning the content of your Will carefully. A probate expert will outline the choices available to you, which could potentially keep thousands of pounds in your Estate to be passed to your children – not the tax man.