Inheritance tax: Grandparents urged ‘reduce your bill’ as receipts rise | Personal Finance | Finance
The rising property prices are bringing even modest homes into the IHT net so careful planning may be required to ensure one’s family isn’t left with a nasty surprise. IHT is paid at 40 percent on the value of someone’s estate, but it only applies above a threshold.
This covers their property, money, and possessions over £325,000 (the nil rate band), although the residence nil-rate band means it can increase to £500,000. Married couples and civil partners can leave up to double this IHT-free.
Jeannie Boyle, Director & Chartered Financial Planner at EQ Investors explained exclusively to Express.co.uk that it is impossible to predict what the exact value of one’s estate will be. However, it’s worth taking the time to understand the overall position that the family will be in.
She said: “Think about your loved ones, planning ahead will give you peace of mind that they will receive what they want them to and also will reduce your bill and the impact of inheritance tax.”
Rebecca Durrant, head of private clients at Crowe UK discussed how Britons can reduce their bill.
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Ms Durrant suggested using direct gifts as the as an effective way to reduce costs.
She said: “A direct gift of cash is the simplest form of gifting, there are few tax consequences to consider and with larger gifts the value falls out of the donor’s estate after seven years.
“For smaller gifts there are also annual allowances available (currently £3,000), gifts on marriage (up to £2,500 for grandparents) and one of the more useful reliefs is where regular gifts out if income can be made.
“These are great for planning where grandparents have excess income and can make regular payments to help with school fees for example.
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Ms Durrant said: “Trusts offer an efficient vehicle for tax planning whilst protecting the cash or assets for beneficiaries.
“Grandparents as the settlors can be trustees so retain control over how the assets are managed and spent and the trust can benefit children, grandchildren and other family members as they see fit.
“Up to £325,000 per settlor (£650,000 for a couple) can be put into trust either as cash or assets such as property or an equity portfolio with little tax consequences. The asset falls out of the settlor’s estate after seven years.
“This is a great way of helping their children with the cost of a young family, as distributions can be made to help with expenses as the family grows.”
Lastly she mentioned giving to charity as an option for cutting one’s IHT bill.
Giving to charity is something that has become important to her clients in recent years, whether this is small cash gifts, gifts of larger assets or even creating family charitable foundations.
She explained that this is often important to the family as a whole and can be factored in without too much detriment to the wider estate.
She continued: “It is also a great way for wealthy families to help the next generation understand the value of money.
“Finally, the key point with gifts is that to be effective for inheritance tax then all rights to the asset including income and capital should be given away.
“Therefore, any large gifts should be done after careful planning to make sure they are not having a detrimental effect on retirement plans!”
