16 November 2012

Private client news - winter: maximising legitimate tax reliefs


We wanted to provide a reminder of some of the standard inheritance tax planning steps that anyone can take.

Maximise business and agricultural property reliefs

If you have property which may qualify for either business property relief or agricultural property relief, then it is important to ensure that all the necessary conditions are met. Sometimes, a small restructuring of a business or farm is all that is required in order to benefit from these reliefs. A small amount of time and effort spent now will avoid an unpleasant surprise in the future.

Pensions and life insurance policies

Ensure that you have completed all nomination forms in respect of your pension death benefits so that the proceeds remain outside of the taxable estates of your families if you were to die before retirement. Most pension companies will be able to provide you with a standard nomination form to complete which will ensure that there is a lump sum which can pass free of inheritance tax. Check that life insurance policies have been assigned into trust. If not, most insurance companies provide a standard trust document which can be used or it is possible to have a bespoke discretionary trust to hold a number of policies. If your policies are written in trust, it could save 40% inheritance tax on the proceeds on your death.

Lifetime giving

There are a number of inheritance tax reliefs in respect of lifetime giving which are simple to utilise. Everyone is able to make gifts totalling up to £3,000 (your annual exemption) each year without incurring any inheritance tax. A husband and wife can contribute £650,000 into a trust for their children or grandchildren every seven years by using their nil rate bands. If used every seven years, this enables a substantial sum to be passed to the next generation over a relatively short period (£1.3m in 14 years), all free of inheritance tax. Other lifetime reliefs include gifts made on the occasion of a wedding (up to £5,000 from a parent) and relief on regular gifts made out of surplus income. Lifetime giving is one of the most effective ways of mitigating inheritance tax and can be done on either a small scale or a large scale depending on your means.

Will

Ensure that your will is up to date and uses all possible reliefs. As was noted recently, if you now give 10% of your chargeable estate to charity, the balance of your estate will pay inheritance tax at a rate of 36% instead of 40%. Otherwise, the use of standard exemptions such as the spouse or charitable exemption are still very beneficial.

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