Issue 131

TAX

Navigating the IHT landscape

Lowes Chartered Financial Planner Chris Brown provides an overview of the current Inheritance Tax (IHT) regime and explains why it is affecting more and more people in the UK.

If your estate’s value is less than £325,000, you currently face no IHT bill but you should regularly monitor asset values. If the value is over £325,000, then IHT will be payable on the value of your assets over the nil-rate band. The rules for IHT differ based on marital status. Assets left to a spouse are transferred without IHT. They become part of their estate and if they are valued above the nil rate band on their death, they will be subject to tax. However, the surviving spouse’s estate may benefit from a combined nil-rate band of £650,000. Single and unmarried couples don’t benefit from the combined rate, they will have nil-rate bands of £325,000 each. In addition to the nil rate band, the residence nil-rate band was introduced in 2015 to address the IHT burden on homeowners, taking into account rising house prices. This adds a further nil rate band £175,000 per person (£350,000 per couple) to estates of those who died after April 6, 2020, if leaving a home to ‘direct descendants’. For a couple, adding the residence nil-rate band means they have a total nil rate band of £1 million. However, not all will benefit due to specific conditions, such as the requirement to leave the home to direct descendants, while estates valued at over £2 million will see their nil rate band allowance reduced on a sliding scale. Financial planning to help reduce potential IHT charges There are various means to help mitigate the tax paid on an estate and Lowes advisers can help ensure clients do not pay tax unnecessarily. Here are some of the ways we can help keep your IHT bill as low as possible. Pensions sit outside of an estate for IHT purposes and provide a useful means to pass money on to your loved ones, and any other beneficiary, free of IHT and also income tax depending on certain criteria. Contined...

Inheritance Tax (IHT) is no longer just a concern for the extremely wealthy. Rising property prices, among other factors, have resulted in more estates facing potential IHT liabilities. The Office for Budget Responsibility forecasts that IHT will raise £7.5 billion for the Treasury in the 2024-25 tax year, compared to £6.3 billion in 2019-20. If your estate incurs IHT, your beneficiaries will be responsible for paying the bill within six months of date of death. However, there are various ways forward-thinking financial planning can help mitigate IHT charges. The best options will depend on personal circumstances. Your Lowes adviser can go through the options to help you make informed choices. But here are some of the ways we can help. First, let’s outline exactly what IHT is and how it affects individual estates. IHT is paid on the value of the assets a person leaves behind when they die, and it can also apply to some gifts made before death. Your ‘estate’ includes all assets left behind. Not everyone is required to pay IHT. Only estates valued over £325,000 (the nil-rate band) are subject to IHT, which is levied at a rate of 40% on the excess. Your estate will include: • Properties • Savings and investments (excluding certain pensions) • Other assets • Life insurance policies in your name To calculate your estate’s value, add up all assets and subtract any debts, such as credit cards, loans, and mortgages, as well as the value of some lifetime gifts, charity donations, and reasonable funeral costs.

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