Planning for Inheritance Tax is different for everyone

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More than half of the people who use our services have come from a personal recommendation from a neighbour, friend or family member.

Inheritance Tax relief applies to both married couples and civil partners, in that no Inheritance Tax is paid on the transfer of assets between spouses/partners on first death. Furthermore, on the death of a spouse/civil partner occurring after 9 October 2007 any ‘Nil Rate Band’ allowance unused on this first death is transferable to the survivor’s estate on second death. Where a spouse is domiciled outside the UK, the transferable allowance is limited

Please note: Couples who are not married or civil partners do not qualify for the tax relief and should therefore take steps to mitigate the Inheritance Tax payable, for the sake of the surviving partner as well as for their children and other beneficiaries.

Inheritance Tax Planning - My Trusted Wills & Estate Planning


Any number of individual gifts, worth up to £250, made during the year to different persons (this relief is in addition to the annual allowance of £3,000).

Gifts, up to a specified maximum, given to the bride or groom, in consideration of marriage. Parents can each give up to £5,000; grandparents may give £2,500, as may the bride or groom.

Anyone else may give £1,000. Parents can make gifts to either party in the marriage; so that, say, a bride’s parents could each give £5,000 to their son-in-law. Gifts should be made so that they are conditional upon the marriage taking place.

7 Year Rule

Other gifts, which do not fall into any of the categories above may also qualify as “Potentially Exempt Transfers” (PETs).

To qualify as exempt, gifts have to have been made by the living donor seven or more years previously. This is known as the `seven year rule`.

If the individual dies during this seven year period, the PET becomes a chargeable transfer, and its recipient becomes liable to pay the tax charged on it.

Of course, whether IHT is charged on the gift in practice would depend on the value of the donor’s estate at death, and whether both gift and estate came to more than the zero-rate (NIl Rate Band) threshold.

It is important to remember that, when assessing the value of the deceased’s estate, the tax authorities include gifts made by the deceased in the last seven years of his/her life. Consequently, even though someone’s wealth may be less than the zero-rate threshold when they die, their estate may still be liable for IHT, since the inclusion of PETs made in the previous seven years may push it over this threshold. The tax payable on the estate depends on the rates of IHT in force at the date of death. It is the recipient of the PET who is liable to pay the tax. The operation of this rule can penalise those who wish to pass on assets to family members or other beneficiaries, but have not done so before death intervenes.

There is provision to reduce the tax charge that would be imposed on PETs, if these PETs are made between three and seven years before the donor’s death. Taper relief, as it is called, is only given to mitigate the inheritance tax charge that would be made on gifts made after this period of time has elapsed. For this purpose, gifts are considered before the rest of the estate. If these gifts fall below the tax-free threshold, they would be tax-free in any case. If so, the estate is not eligible for taper relief at all, even if the total value of the donor`s estate at death – gifts included – is above the tax-free threshold.

Relief is available as a percentage reduction in the tax payable on the gift itself; the nearer the donor is to surviving seven years after the gift, the greater the relief. See below the years between transfer and death and the corresponding percentage reduction in tax payable: –

0 – 3 0 %
3 – 4 20 %
4 – 5 40 %
5 – 6 60 %
6 – 7 80 %

Inheritance Tax is a complex subject and as well as the relief mentioned above, there are a number of other reliefs that are available, particularly through the creation of Trusts (see Trusts). Additionally, further relief can be available in certain cases for Business and Agricultural Property, and property owned abroad by a non-domiciled person living in the UK.

It is worth mentioning that the net assets left in a person’s Will, do not necessarily represent the full assets of that person when assessed for Inheritance Tax. For example, on death, property that is jointly owned automatically passes to the surviving joint owner or owners and is not disposed of by the Will. Equally, assets of a trust that the deceased had a life interest in, could be assessed for Inheritance Tax, but the assets would pass automatically to the ultimate beneficiaries.

Inheritance Tax planning is paramount when making a Will, if the value of your estate is above the Inheritance Tax threshold. This however, is a subject that may require very individual consideration and is not a subject therefore where general assumptions should be made

Before leaving this subject, it is worth noting that full Inheritance Tax Planning often involves other parties – particularly financial advisers and accountants. We are neither, but we will work with your existing advisers, or can put you in touch with advisers if you need us to, so that you have a comprehensive plan in place to minimise tax and maximise the estate that is passed to your chosen beneficiaries.

With that said, it must be made clear that we will not step on the toes of the relationships you already have! We have no desire to steer you away from people that you know and trust. On the contrary, we are always on the lookout for new partnerships with good quality financial advisers and accountants. Working together, with your best interests at the centre, we can work out the best plan for you.

Contact us for a no fee, no obligation consultation.

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