Inheritance Tax

Gary Naylor

Inheritance tax (IHT) used to be of concern to only a small number of individuals, however, rising asset values and static basic thresholds have made this far from the case any longer.

Increased property values in the UK, when added to other assets, mean more families than ever before could find their Estates caught in the IHT trap, underlining the importance of proper structured Estate and Succession planning.

As years go by, rising estate values with an ever ageing population could be leading to unprecedented wealth transfer levels. According to the ‘Office for National Statistics’, 18% of the UK population were aged 65 and older in 2016, and this proportion is expected to increase to 25% by 2045.

As such, families could stand to lose substantial levels of assets as they pass between generations, if this intergenerational wealth transfer occurs without careful and qualified IHT planning assistance.

IHT Basic Details

IHT is normally charged at 40% of an individual’s directly-owned assets over the nil-rate band.

This threshold currently stands at £325,000 per individual. Assets can be passed to a spouse/civil partner without IHT, with any unused nil-rate band effectively ‘inherited’ by the surviving partner, meaning in most cases a married couple or those in a civil partnership have up to £650,000 that can be passed on to other beneficiaries in the future without IHT.

If a main residence is left to direct descendants (i.e. children or grandchildren, including adopted, foster or step-children), an additional allowance of £150,000 per person may be available. This residential nil-rate band will increase by £25,000 to £175,000 in April 2020, with increases in line with the Consumer Prices Index (CPI) each April thereafter. This ‘allowance’ can also potentially be inherited by a spouse or civil partner, and in some cases is available even where no main residence is left on death, for example if a property that would have qualified was sold on or after 8 July 2015.

Financial Advice

The ‘inheritance dilemma’ creates planning challenges for families, however, IHT can be regarded as a ‘voluntary tax’ as it can legitimately be mitigated in many cases. There is no ‘one size fits all’ solution when it comes to IHT planning, as it depends on each set of circumstances and an individual’s attitude towards the different strategies available. We believe strongly that specialist advice should be taken whenever considering this area of planning and Independent Financial Advisers are in the unique position of being able to help their clients navigate the complexities of IHT, maximising intergenerational wealth transfer for the next generation to inherit from their parents and grandparents.

To find out more or for a no obligation initial meeting please contact Optimum Independent Financial Advisers.