What happens if… I want to protect my assets from Inheritance Tax?

What happens if… I want to protect my assets from Inheritance Tax?

Families and individuals who want to pass on their legacy need to tread very carefully in order to manage their exposure to Inheritance Tax (IHT).

In England and Wales, IHT is levied at a rate of 40 per cent of an estate’s total value above  £325,000. This £325,000 threshold is known as the ‘nil rate band’ and, despite ever-rising wealth across the country, has remained frozen at this amount for several years.

According to up-to-date figures from HM Revenue & Customs (HMRC), the Treasury collected a record £5.3 billion in IHT last year – up 13 per cent on the amount of IHT brought in the previous year.

Reports continue to emerge suggesting that more and more middle-class families are paying hefty IHT bills, which is why it is now more important than ever to plan ahead by obtaining appropriate tax advice.

What can I do to manage my exposure to IHT?

Individuals and families who want to explore ways of managing their IHT exposure should investigate all of the options that might be available to them.

One option worth exploring might be the additional residence nil rate band (RNRB). First introduced in April 2017, this is an additional tax-free threshold families can tap into if they plan on leaving a residential property to their direct lineal descendants in their Wills.

As of 6 April 2018, individuals can pass on an additional £125,000 in property value to children, grandchildren, step children and foster children completely tax-free using this allowance.

As married couples or those in a civil partnership can combine their allowances, this means that couples can effectively pass on £900,000 worth of property completely tax-free if they seek appropriate advice to incorporate the RNRB into their Wills.

But there are many other beneficial tax savings available. For example, individuals can manage their exposure to IHT by passing a portion of their estate to a charity when they die.

By leaving 10 per cent of their net estate to a charity, individuals will pay IHT at a rate of 36 per cent as opposed to 40 per cent.

There are a number of ways in which families and individuals can manage their IHT exposure and it is always worth obtaining tailored tax advice in this respect.