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Money Matters Inheritance Tax Solutions
“A
nd I’ll have to pay death taxes!” was a comment I heard from
a client recently, a sentiment of resignation echoed by many. People have worked all their
lives and behaved prudently. If you passed up opportunities and luxuries in favour of stability, the legislation can feel unjust: you pay for your own care, pay to keep warm and, finally, pay Inheritance Tax (IHT). IHT is generally charged at 40% on the value of an estate above the Nil Rate Band (NRB). Each individual has a £325,000 NRB, with any unused proportion transferable to a spouse or civil partner. Qualifying homeowners leaving their home to direct descendants may also receive a Residence Nil Rate Band (RNRB) of £175,000 per person. These thresholds may sound generous, but are soon eroded. Residential and investment property have historically created the greatest IHT problems. Both are costly to acquire and maintain, yet many owners have enjoyed substantial increases in value- particularly those who bought a modest home decades ago. Property may consume the entire
NRB, exposing savings, personal effects and gifts made within seven years of death to IHT. Its illiquid nature can create further difficulties for executors and beneficiaries at an already distressing time. The framework is also becoming
more restrictive. From April 2027, most unused pension funds and death benefits will fall within the estate for IHT purposes. Pensions were previously often accessed last because of their tax efficiency. Their inclusion creates a potential 67% tax
By Rob Cowsill - IFA
trap where someone dies after 75: IHT may be charged at 40%, followed by Income Tax when the beneficiary withdraws funds at their marginal rate. In addition, 100% Agricultural
Property Relief and Business Relief is now limited to a combined £2.5 million per person, with 50% relief applying above that level. These changes may have serious consequences for some farming and business families.
Each option has
advantages, disadvantages and conditions.
exempt. Alternatively, spend the money and enjoy it! Each option has advantages, disadvantages and conditions. Despite having its wings clipped, Business Relief (BR) remains attractive to some people concerned about IHT. Qualifying assets can receive relief after being held for two years, provided they are still held at death. Options span different asset classes and levels of risk, with minimum investments around £20,000-a potential £8,000 IHT saving. These reliefs are intended
to encourage investment in infrastructure, innovation and job creation-not offshore shell companies or elaborate tax schemes. Octopus Energy, for example, is part of the Octopus group; its growth in renewable energy was supported by Fern Trading, a BR-qualifying investment launched by Octopus Investments in 2010. BR investments behave much like other investment vehicles: they seek long- term growth and can usually be accessed if circumstances change. This combination
There is an understandable view
that beneficiaries are fortunate to receive anything at all. I agree, but the concern is double taxation and the natural desire of a breadwinner to benefit those around them. Psychologist Dr P. Pearsall concluded that our most basic instinct is not survival, but family. Thankfully, there are choices. Gifts
normally fall outside the estate after seven years; trusts can add control; insurance may provide a lump sum on death; charitable gifts can reduce the effective IHT rate; and regular gifts from surplus income may be
of potential IHT relief and control is unusual, although capital remains at risk and relief depends on individual circumstances. If you would like to discuss your IHT options or any other financial concerns, please do not hesitate to get in touch. Rob Cowsill – IFA, SW Financial Planning
01752 205205 •
www.swlaw.co.uk
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