IS INHERITANCE TAX AVOIDABLE?

TODAY’S BLOG

IS INHERITANCE TAX AVOIDABLE?

News this week that the taxman is set to take a record amount of inheritance tax for 2018/19 is perhaps not too much of a surprise. Most years the amount of inheritance tax paid rises. Arguably the least popular tax – sometimes called death duties, this is the tax that applies once you die to your worldly wealth.

It is generally the case that if you are married, it is only paid once the both husband and wife have died. This final day of reckoning, tax-wise generated £4.5billion in the first 10 months of 2018/19. A new record high.

It is surprising that despite complaining about the tax, most people do little about it. IHT is one of the few taxes that is avoidable by arranging your affairs sensibly in advance.

5 QUICK TIPS

1. Consider taking out an insurance policy to pay the bill. Admittedly this has a cost and does not remove the bill, but it does enable your real wealth to be passed on to those you want to receive it, rather than the Chancellor. A simple joint-life second death policy placed into Trust will suffice.

2. Have a Will and review it. This will ensure that your estate is passed to the right beneficiaries and you may also nominate charities. Gifts to charities are exempt from any inheritance tax.

3. Know your limit. Everyone has a limit known as the nil rate band. This is the first £325,000 of an estate – the net value (assets less liabilities). If you have a property this can be increased (complicated but it will increase). Couples double up on these. You can find more detail within out FREE app about this.

4. Consider using IHT exempt investments, this is really not for everyone, but is certainly a possibility. The most basic being business owners have certain exemptions – technically known as BPR, as does owning woodland or some aspects of farming. You can also hold some AIM listed shares which will be exempt – but be warned all these options have pro’s and con’s.

5. Spend money from the right places. Under pension reforms, it is possible to pass on the balance of a pension fund free of inheritance tax. So if you have the option, you may wish to use up other investments that will be subject to IHT first. Context is everything and thought needs to be given to this from an income tax angle and investment approach.

There are other options too, so if you would like to discuss how you can reduce inheritance tax please get in touch. However, if you are married and have a net estate worth less than about £1million you probably wont have any inheritance tax.

And finally a reminder about our app, which is loaded with all this information.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

IS INHERITANCE TAX AVOIDABLE?Dominic2025-01-21T15:48:29+00:00

INHERITANCE TAX UPDATE

Solomons-financial-advisor-wimbledon-blogger

Inheritance Tax Update

Inheritance tax has sometimes been described as a voluntary tax. This may ruffle your feathers a little, but is of course true in principle. That is to say that you can plan for inheritance tax. You do so by arranging your affairs in such a way that you either pay minimal tax, none or ensure that you have resources aside to make no significant difference. Despite this between April 2018 and the end of the summer (August 2018) a whopping £2.357bn was paid to the Treasury in the form of inheritance tax. This is almost as much as was collected in the whole of 2010-11.

The Office of Tax Simplification has completed (8 June) a survey of the review of inheritance tax. This is currently being contemplated. The last Chancellor introduced a more complicated way to increase the inheritance tax allowance. What appeared reasonably generous, was actually conditional. The extra benefit, under certain condition could be lost. Those that remember “Yes Minister” might smile at the notion of the OTS asking how to do their job. That is to say, the Office of Tax Simplifcation, asking “how do we simplify IHT?”. For starters, do what you are meant to do and make it simple. The debate about whether IHT is “moral” or “political” is probably a secondary issue to it being at least “simple” which currently… it is not.

Asking the Questions…

The survey poses more questions, which largely seem to be concerned with record keeping rather than adjusting the rate or rules. However as only around 5% of estates pay IHT, perhaps the issue is one that most people are not as bothered by as the news outlets suggest. However, the survey makes an interesting read, highlighting all the current “issues”. See the survey here.

You may have noticed that I wrote a series of pieces on inheritance tax, three years ago how gifts are recorded and the forms that you could even download and prepare for your beneficiaries. You can find these here.

What if you had died yesterday?

Where are you originally from?

Marriage is not an IHT exemption

How does HMRC know about gifts?

As safe as houses

Paying inheritance tax when someone dies is not always straight-forward. The term “estate” is perhaps misused, it should really mean “death” and when one person in a marriage dies, there is no inheritance tax by default.

The amount of IHT collected continues to rise each year. Consider each of these tax years.

2010-11 £2,724m

2011-12 £2,917m

2012-13 £3,147m

2013-14 £3,417m

2014-15 £3,825m

2015-16 £4,673m

2016-17 £4,840m

2017-18 £5,228m

Folks, it doesn’t have to be this way… you have the power to plan for the certainty of death

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Email me to get in touch

INHERITANCE TAX UPDATEDominic2025-01-21T15:48:30+00:00

How The Light Gets In

How the Light Gets In

My Bank Holiday weekend was spent in Hay on Wye, not for the literary festival, but for the parallel festival – How the Light Gets In. It’s a festival run by the Institute of Arts and Ideas, primarily discussing and debating philosophy, economics, power and art. This year the agenda was packed with some excellent speakers, many of whom should ruffle feathers and rattle cages. In essence to inspire thoughtfulness.

One of the talks that has remained with me most was from Kwame Anthony Appiah, who delivered the 2016 Reith lectures. He is a professor of Philosophy and Law. He made the case against meritocracy, something that I had previously imagined and understood to be a fairer system, whereby effort is rewarded in life, rather than where and to whom you are born. He fairly quickly dismantled my perhaps, lazy views with sound argument. In particular the way that parents, at least most of them, are prone to a natural tendency to give their own children every advantage possible (understandably).

Fairness and Merit

If we are to have a fairer society, (I am not naïve enough to believe we are likely to achieve a fair one) then these issues need consideration. The suggestion that money is earned and deserved for hard work is fairly common, but of course it is commonly inaccurate. No doubt many work hard and are rewarded well, financially. However, many work very hard (provision of labour) perhaps working 3 jobs and this is of course, not rewarded in anything like the same measure. We know this, yet ignore it, basically telling ourselves that this is life, perhaps we are smarter and able to employ our minds rather than our bodies, or that we are rewarded for the value we add, not the functions we do. In practice it is of little comfort as an explanation and does nothing to redress imbalance.

Natural Bias

Inheritance tax is arguably one way to test if you believe in meritocracy. If you were unable to pass on wealth, your offspring would not have the advantage of a capital sum to help them. Yet hardly anyone likes inheritance tax, it feels very much like the last kick to the stomach from a system that has already taken what feels like more than its share of tax, without suffering the indignity of further taxes for dying. Yet any sense of meritocracy surely dies upon receipt of legacy. Note I am not arguing for 100% inheritance tax, merely pointing out that most of us have a sense of fair play, that is perhaps not as fair as we may wish to think… which of course is a matter of opinion.

Appiah was not suggesting we introduce such taxes, indeed he pointed to the reality of luck, chance and time. Mozart’s gifts would have been useless in a society that only possessed a drum. Einstein would have failed in a culture of wall paintings. The point, perhaps is that we forget our great good fortune, genetic, historical, familial and financial, all of which have a significant effect on our own “success” which may have relatively little to do with who we really are. There are countless other possible lives we could have lived had circumstances been rather different, something captured rather well in a recent episode of Legion.

Versions of You

As I build a financial plan for a client, we consider many possible versions of the future, goals, dreams, desires, hopes… whatever, but essentially yours. The reality we must all face is that when it comes to the future, we have to start with where we are, we have options (many) whatever our chosen course, which may well alter, we have to actually start the journey, not wait for it to arrive.

Oh, if you are interested, How the Light Gets In announced a London event on 22-23 September, to be held at Kenwood House, should you wish to check it out for yourself…. click here for more.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Email me to get in touch

How The Light Gets InDominic2023-12-01T12:18:04+00:00

Business Owners and EIS

This item is aimed at business owners and how an EIS might be of use.

Many business owners are growing increasingly frustrated about the tax associated with extracting profit from their companies. Often referred to as “double taxation”, a company owner must first face corporation tax on profits made by their business and again when they decide to pay themselves a dividend/salary. It can at times, feel like you are working for HMRC.

An Enterprise Investment Scheme (EIS) can be used to extract profit from a business tax efficiently. EIS was introduced by the UK Government in 1994 in order to induce investment into UK smaller companies. In order to make investing in smaller companies more attractive, compensating the additional risks, there are a number of tax reliefs available through EIS investments (providing you hold your investment for at least three years).

Income Tax Relief	CGT deferral	IHT relief
Reduction in income tax liabilities amounting to 30% of the total investment	Facility to defer paying CGT on all, or part, of a chargeable gain by investing the gain into EIS qualifying shares	EIS companies qualify for Business Property Relief (BPR)
Relief can be applied to the current or previous tax year	Investors can defer CGT by using EIS up to 12 months before crystallising gains or up to 36 months afterwards	As long as shares have been held for 2 of the last 5 years and are held at time of death and remain BPR qualifying, the value of the EIS investment will count as part of your estate but will have a nil value for IHT purposes
The maximum amount of income tax that can be claimed is £300,000 for the current tax year and £300,000 for the previous tax year
Relief cannot exceed the amount which reduces an investor’s income tax liability to nil

Business Owner – Double Tax

Mr Williams, normally a higher rate tax payer, owns a small business. He pays himself a £10,600 salary per year in order to stay within his personal allowance; no income tax is paid on this amount. In addition to this salary he pays himself a dividend each year which attracts an income tax liability. However, he is still frustrated with the amount of tax paid on the dividends.

If Mr Williams pays himself a £50,000 dividend, he will owe 25% (£12,500) in income tax on this (once we take the tax credits into account). This will leave him with £37,500 of net funds in his account after paying the tax.

If Mr Williams invested £50,000 into an EIS, he will be entitled to 30% income tax relief (£15,000). This tax rebate can be used to wipe out the £12,500 due on the dividend. It also leaves him with an extra £2,500 of income tax relief to set against other income tax he has paid across the current and/or previous tax year.

He is left with a £50,000 EIS investment, which he can liquidate once he has held the investment for three years. Providing the EIS investment has, at least, preserved its value Mr Williams has saved £15,000 in tax as a result of this investment.

Any growth within his EIS investment is tax free, as per the EIS rules.

My example, implies that Mr Williams has adequate resources elsewhere, so that he can invest £50,000 rather than it being needed for income. The word or note of caution, is that an EIS is obviously an investment and at the higher end of the risk spectrum (though running your own business obviously carries risk). Whilst investing in smaller companies often involves higher levels of risk and worse levels of liquidity, many investment companies offer EIS investments that target capital preservation. These investments involve companies with long-term, index-linked and stable cash flows.

Want to know more? – get in touch.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Business Owners and EISDominic2025-01-27T16:09:47+00:00

Inheritance Tax and BPR

You will recall that I have been blogging about various HMRC inheritance tax forms, and last week I also discussed Power of Attorney and the Court of Protection. Today I am high-lighting some planning opportunities that address these issues in a practical way using BPR – or Business Property Relief.

Inheritance Tax (IHT) is the second most resented tax in the UK. IHT is currently payable at the rate of 40% on an individual’s estate which exceeds the ‘nil rate band’, currently £325,000. Estates which comprise a family home and few other assets can incur a large tax liability. There are many options available to those who wish to mitigate their estate’s IHT liability. Trusts and gifting are the most common strategies employed, but both take 7 years in order to be fully effective. For clients who are elderly or unwell, this is often too long a timeframe.

Business Relief, or Business Property Relief (BPR) as it is commonly known, is a UK IHT relief that was introduced by the Government nearly 40 years ago (7 April 1976). It was designed to allow business owners to pass on businesses to beneficiaries without incurring an IHT liability. In 1996, it was made more widely available to private investors and now allows any qualifying investment held for at least two years, and at the time of death, to benefit from 100% IHT shelter. Most unquoted, UK registered companies will qualify for this relief. This two year timeframe makes this form of planning the quickest way of sheltering assets from IHT.

BPR and Power of Attorney

Another area when BPR could be of use is when Power of Attorney (POA) is in place. Take a look at this example.

Mrs Jones is 70. Her son has Power of Attorney (POA) over her financial affairs and due to her poor health, he can make financial decisions on her behalf. Gifting and trust planning may not be possible in this case, because a number of restrictions exist to avoid attorneys abusing their positions. One of the main rules states that attorneys cannot give away access to a donor’s (Mrs Jones) funds, without applying to the Court of Protection for approval. Trust work and gifting both involve a change of ownership and it would be difficult for Mrs Jones’ son to successfully put either in place. It may also be unsuitable given the 7 year timeframe and Mrs Jones’ health status.

Mrs Jones’ son could, however, invest in a BPR qualifying company/a portfolio of companies on her behalf. Since the investment remains in her name, he has not changed the ownership for the funds and since a BPR investment only requires 2 years to become effective for IHT purposes, it may be the most suitable option.

Unquoted companies are usually riskier than those listed on a major stock exchange. Whilst there are a number of risks associated with investing in unquoted companies, many investment companies offer BPR investments that target capital preservation. These investments involve companies with long-term, index-linked and stable cash flows.

Want to know more? just get in touch.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Inheritance Tax and BPRDominic2025-01-21T15:48:31+00:00

How does HMRC know about gifts?

Dominic Thomas
Oct 2015 • 3 min read

How does HMRC know about gifts?

You may have been very generous with your wealth and given lots of money to your beneficiaries or charity prior to your death, but how on earth does HMRC or the Executors of your estate know to correctly offset these gifts (if appropriate) against your estate?

Probably the simple answer is that if it isn’t recorded, it would seem difficult to prove a gift was made. There are a variety of issues – the annual giving allowance (£3,000) does not need to be reported, but frankly it would seem wise to record the fact that the amount is actually gifted… all helping to demonstrate the accuracy of the story behind the information.

Here’s the link to take a look at form IHT403 – which is essentially a list of gifts and transfers that you have made within the last 7 years. In short, you really need to know the dates of the gift (within a tax year), the beneficiary, a description and the value of the gift.

Inheritance tax can get rather complicated with terms like “Pre Owned Assets” “Gifts with Reservation” “Lifetime Transfers” and more. So it’s rather important that the source of gifts is documented. To my mind it makes sense that you provide a brief written, dated document to the recipient of your gift and ideally your financial planner and possibly Accountant if you have one. Certainly retain a copy within your records – but remember passwords are all well and good when you are alive, but when you aren’t here to tell anyone what they are…

Gifts from Income

I don’t wish to drown you with detail, but it is possible to make gifts from income, provided that this is not to your detriment or deliberately reduce the value of your estate for IHT planning. If that sounds like an oxymoron… well, that’s the state of the tax system.

How do you demonstrate legitimate regular gifts from income? without a summary of your tax year income and expenditure I’d suggest that it will be fairly “difficult”. A business doesn’t have this problem – there are obvious accounts, or at least there should be, but as individuals perhaps the rule of thumb ought to be – think of yourself as a business – which means keep details carefully.

Taking a look at the last page of the form IHT403, you will observe that HMRC will request details of income and expenditure for the last 7 years. Could you provide this for yourself today? if not, how on earth will your Executors?…. hence one of the reasons we ask clients to update us with income and expenditure information every tax year… enabling us to help them build up a record – but also to do all the other sensible financial planning stuff – like helping reduce income taxes, checking that our assumptions about future lifestyle costs are broadly right and where it’s all going… and ideally to help them catch rather more of it than they otherwise would. So yes, those forms are rather important both whilst you are alive or deceased.

In practice, it is possible that HMRC might even wish to go even further back in time, perhaps as much as 14 tax years prior to death…. so my advice is to get your “ducks in a row” – which has several important positive by-products.

Better budgeting
Better financial planning
Lower income taxes
Reduced costs
Longer-lasting wealth…

You heard it here – make an HMRC form your best financial planning tool!

BACK TO ALL BLOGS

How does HMRC know about gifts?Dominic2025-01-21T15:48:51+00:00

What if you had died yesterday?

There’s no escaping this highly sensitive topic – death. It comes to us all eventually. However I’d like to take a different approach to this topic in relation to your financial planning, it will be a short series that I hope will be of value to you and yours.

Can I first of all challenge you to simply have a look through the HMRC (Inland Revenue) form called IHT400. It is the starting point for those charged with administering your estate. Yes I am serious. However far off death hopefully is, what if you’d been hit by the proverbial bus yesterday? Who would pick up this task and how do you expect them to complete it? Here is the link (open a new window – so that you don’t leave this page).

HMRC IHT400

OK, assuming that your estate does need to be reported (i.e. worth more than £325,000) and you moved past the double-speak, does anything strike you?

Stating the obvious…

I’m not going to approach this line by line, but to highlight some basic points. Whoever has to complete this form has a huge task ahead of them… perhaps you have done this for someone else already?… I have several times. The guidance notes document that accompanies IHT400 runs to nearly 100 pages…. the NOTES!

So let’s face a few key facts

You have 12 months to complete the form
After 6 months interest is charged
You need a lot of personal information, matters of record – marriages, births, deaths
You probably need a family tree
You need tax information, NI number, tax reference etc
You need a valid Will
You need a list of gifts and disposals
All banking information, investments, pensions and life assurance
All assets on a worldwide basis
All liabilities and debt
Details about Trusts and exemptions
Details of your income and expenses for the last 7 years
There are another subsequent 21 forms IHT401-IHT430

If experience has taught me anything, it’s that getting most people to put this sort of information together isn’t easy – because it’s an arduous, daunting task. Yet this is what we leave others to do for us in a time of stress. Yes a solicitor can do this for you, but actually most, if not all of the information is within your possession, it’s simply that it’s not easy to extract or perhaps understand.

Who else has this information? well…. we do… if you have kept us up to date…. which is one of the many reasons for requesting it. So… imagine that yesterday was your last. You are not here to tell your loved ones and/or Executors where everything is neatly filed (!)…. so where to begin? may I suggest we address this now? You could even start by printing off IHT400 and putting in some of the information you already know…. you can see where I’m going with this can’t you.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

What if you had died yesterday?Dominic2025-01-21T15:48:51+00:00

Where there’s a Will – part 2

I asked Alex Truesdale for her thoughts on the ruling by the Court of Appeal and am thankful for her very valuable insight, here are her thoughts and observations.

The Court of Appeal’s judgment in this long-running dispute confirms that disinherited children are permitted by a 1975 statute to challenge their parents’ Wills if reasonable provision for their maintenance is not made. “Maintenance” means the child’s cost of daily living at whatever level is appropriate to them. The question of what is “reasonable” is dealt with by the court exercising its discretion to consider a number of factors laid down by statute, including the child’s needs and circumstances, the needs and circumstances of the beneficiary who has inherited instead, and the parent’s conduct. Here, Arden LJ endorses the lower court’s description of Melita Jackson’s conduct towards her daughter Heather Illot, since their 1978 estrangement, as “unreasonable, capricious and harsh”, before replacing the lower court’s £50,000 award with a sum of £163,000. This, Arden LJ reasoned, would allow Mrs Illot to purchase her house, receive a modest income, and potentially arrange a pension through equity release, all without compromising her state benefits.

This is not new Law

None of this is new law. But it is inevitable that this high profile victory for Heather Ilott – albeit one which sees her receiving just over 1/3 of her late mother’s estate – will encourage further challenges to Wills which seek to disinherit family members, particularly if there is no connection between a testator and the charity which has benefited from a windfall legacy. A costs order has yet to be made but will be considerable: Melita Jackson’s insistence that her executors defend to the hilt any attempt by her daughter to contest the Will will already have eroded the value of her estate, and so now the charities themselves face a smaller residual legacy and their own costs bill. There may be a further appeal to the Supreme Court, but I would suspect that the charities will take a view on the reputational as well as financial damage they risk in prolonging a dispute which has run since 2004 and, arguably, since the estrangement in 1978.

Where does this leave testamentary capacity? Much as it was before – the award made in this case turns on its own facts, and does not represent any further curtailment of one’s freedom to leave one’s estate as one pleases, so we should all still be making Wills.

Think ahead and think carefully

However, I would encourage those who do wish to exclude family members from their Wills to leave contemporaneous evidence of their reasoning not only to exclude a particular beneficiary, but also to favour other beneficiaries. This is particularly important if, in the case of charities, the testator has no connection with, or history of donations to, charity during their lifetime. I have been instructed on a number of cases where we have done just that by way of a side letter, to try to avoid the washing of too much dirty linen during probate, a process which makes Wills public. And those asked to act as executors should always check whether they are risking accepting a poisoned chalice that may compel their involvement in a protracted legal battle. As in this case, that may, sadly, become the testator’s most enduring legacy.

Alexandra Truesdale MIPW

Alex Truesdale Wills Limited | Registered in England and Wales no 7275445 | Registered office: 27 Mizen Close Cobham Surrey KT11 2RJ

Alex Truesdale Wills Limited is a member of the Institute of Professional Willwriters and complies with its Code of Practice

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Where there’s a Will – part 2Dominic2025-01-21T15:48:52+00:00

A Matter of Life and Death

A matter of life and death

It is one of the strangest aspects of conversations that I have with clients. It gets stranger and perhaps more difficult the older they become. We have to talk about a matter of life and death.

In essence, when all is said and done, financial planning is about trying to ensure that your money does not run out before you die. So we need to have a conversation about when that might be. We don’t know the answer. Death is a daily part of life, yet something that most of us manage to avoid talking about.

The motivation behind the question is obviously to attempt to make money last long enough, however it is also designed to prompt thoughts about what is life about, what do you want from it during this brief sojourn on this wonderful planet?

Thoughts may turn too quickly to estate planning and reducing inheritance tax, rather than considering the true inheritance that is being left…. the memory and impact of .. well…you!

I might (will) point to the financial impact of your loss to those dependant upon you, be they family or your business, but we all know that its much bigger and deeper than that don’t we. So good financial planning can take care of financial loss, but great financial planning will hopefully remind and inspire you to ensure that you make the most of the life you have now.

Another way to view death – acceptance

A dear friend of mine, who has had more than her fair share of grief drew my attention to this short video about death (and life). It combines images from various films and words of Alan Watts. It is worth taking the 3 minutes to watch it.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

A Matter of Life and DeathDominic2025-01-28T09:57:00+00:00

Estates: Inheritance Tax

So it’s 8th July already and into the second half of the Wimbledon Championships. Looking at your own life, which half do you imagine you are in? (ouch… didn’t see that coming!). Like most people inheritance tax (often referred to as IHT) probably isn’t something that is top of your current concerns (you don’t pay it) however it is a tax that generates more ire than most. In essence, inheritance tax is paid by the Executors of an estate following someone’s death. The amount of tax due will depend on the value of the estate and how it was arranged.

Today the Chancellor will give yet another Budget, but this one, the first as a Conservative Government. Like many I shall be waiting to hear what he says and see how he plans to deliver it. One of the pre-election manifesto promises was to increase the threshold for inheritance tax, perhaps to £1,000,000 for a couples main residence.

He may be less willing to follow through with this now as it was announced that in April HMRC collected £397m as inheritance tax payments, the largest in a single month and way above the longer term average of £260m a month. In fact March, April and May 2015 saw over £1bn of inheritance tax paid to HMRC. If interested, you can see the various taxes collected by HMRC from the data they published at the start of the month, just click here.

The Budget 8 July 2015

We shall simply have to wait for the Chancellor to tell us how and if he intends to adjust the nil rate band (the amount an estate can be worth before any inheritance tax is payable). The nil rate band has been frozen at £325,000 since 2009 and had historically increased with inflation each year, but of course that was before the credit crunch. As ever our APP will be updated with all the changes as quickly as possible (usually before the end of the day). Don’t forget it’s free and easy to use.

Pensions and ISAs are now IHT friendly

The main gripe is that property has continued to soar in value and is invariably the main asset that is left once someone dies. The pension freedom rules have enabled pension funds to be exempt from inheritance tax (though some taxes may apply) and ISAs are able to be passed on to a surviving spouse (previously they would have lost the tax-free status of an ISA).

As a result more people, or rather estates have been brought into the inheritance tax threshold, probably not the original intention of the tax. However the Chancellor will be seeking some wriggle room to keep things as they are given that it raises such significant sums for the Treasury.

A 40% tax rate

As of this morning, inheritance tax is charged at 40% on the excess value of estates worth £325,000. Each individual has a nil rate band and so a couple effectively has a nil rate band of £650,000. In addition, for those that have been previously married to someone now deceased, it is possible to use part of their allowance too.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Estates: Inheritance TaxDominic2025-01-21T15:48:52+00:00