Here are our top tips for estate planning, wills and inheritance tax:
1. Make a will and a letter
Do not assume that the intestacy rules that take effect by default will provide for your beneficiaries how you would like to. A well drafted Will is the most important tool in ensuring that your wishes are followed and in avoiding family disputes when your die.
2. Speak to an expert
This is crucial. The law surrounding Estate Administration and Inheritance Tax (IHT) is complex and changing all the time and you would be well advised to make sure you are aware of all of the options available to you.
3. Take advantage of the relief for 'normal expenditure out of income'
Many are unaware of this valuable exemption which immediately exempts regular gifts out of surplus income from IHT no matter how large and regardless of how long you live after making them. Just make sure you keep records to prove you had a surplus to give away.
4. Maximise eligibility for the new residence nil rate band (RNRB)
From April 2017 where your Estate is under £2m and you leave your house to your children/ grandchildren an additional IHT-free allowance is available which means a couple with a £350k house whose combined estates are under £1m could by 2020 potentially pay no IHT at all. However careful drafting of your Will is essential here.
5. Consider gifts
Can you give it away? Much Estate planning starts with identifying cash/assets which you could happily pass on now for the benefit of your ultimate beneficiaries. Trusts and FICs are two ways that we commonly use to achieve this whilst ensuring you retain control.
6. Think about leaving a portion to charity
Where you donate at least 10% of your net Estate to charity the rate of IHT payable falls from 40% to 36%. As such, particularly where you were already considering providing for charity in your Will, you may find that an increase to 10% may at least in part pay for itself. You may even wish to consider creating your own Charitable Trust or Foundation.
7. With any inheritances you should consider skipping a generation
You have two years after the death of a loved one to potentially vary any entitlement you otherwise have to their Estate. Consider passing assets directly to younger generations as doing so later could be costly and much more difficult in terms of tax.
8. Do not waste BPR or APR
Business and agricultural property can attract these very valuable reliefs which can be at either 100% or 50%. Where these assets are left directly to your spouse this relief is effectively wasted as might an opportunity to potentially get this relief twice over! Again, careful Will drafting is required.
9. Consider making IHT - efficient investments
There are a growing number of investments available which can shelter your wealth from IHT, usually because they can qualify for BPR. Ask an Independent Finance Adviser for more details.
10. Consider the future of your business
What will happen to your business when you die? Have you currently any succession plans in place? Your Will should provide for a managed transition for which you might consider appointing Trustees whom you entrust to handle that process.
If you would like more information on the above, or would like to discuss your affairs in general, please contact us.
