The end of March signals the end of the tax year, an excellent opportunity to review long term financial and wealth planning.
There have been a number of changes in areas such as inheritance tax over recent years, explains Peter Gosling a partner at law firm, Higgs & Sons and an expert in succession and wealth planning. Many families are still unnecessarily caught by inheritance tax. Even those who have fairly moderate wealth and have savings and pensions or own property, could benefit from reviewing their financial situation.
The ordinary nil rate band (NRB) for 2015-16 is £325,000 and will be frozen at this level until 2020-21. However, George Osborne introduced new rules for the passing of the family home in last years summer budget.
This has created a new residence nil rate band available in respect of a property which at some point has been the deceaseds main residence. This will be £100,000 for deaths after 5 April 2017, rising to £175,000 after 5 April 2020. If unused, it will also be transferable to the deceaseds spouse or civil partner, making total Inheritance Tax (IHT) exemptions of £1 million for a couple from 6 April 2020, although estates over £2.2 million will receive no benefit from the new rules. Inheritance tax is then payable at 40% on the estate over the available allowances.
It is a complex area, however Peter is offering several tips to individuals who wish to take advantage of recent changes in order to protect their wealth for the long term.
The mitigation of IHT is best thought of as a process rather than an event, with the best results typically being achieved by taking a series of smaller steps over a number of years.
At the end of each tax year individuals should consider using available allowances, exemptions and reliefs to help mitigate tax liability.
Peter recommends using the following tools to ensure maximum wealth protection:
- GIFTING - you should consider gifting assets during your lifetime to minimise the IHT payable on your death. Such gifts will fall outside the IHT net after seven years, provided you do not reserve a benefit in the asset transferred.
- ALLOWANCES - make use of other IHT reliefs and exemptions, such as the annual gifts exemption of £3,000 (£6,000 if no gifts were made during 2014-15), the small gifts allowance of £250 per donee and gifts made in consideration of marriage (£5,000 to children, £2,500 to grandchildren, and £1,000 to anyone else).
- SURPLUS INCOME - if you have income surplus to your normal living expenses, consider making use of the IHT exemption for gifts out of income. Such gifts are tax-free, even where death occurs within seven years.
- VARIATIONS - if a family member has died within the last two years, check whether a deed of variation could reduce any IHT liability arising in respect of their estate, or be used to redirect the assets to where they are most needed.
Peter concludes: Though we may not want to think about it too much, it is important to consider what will happen to your hard earned wealth after you are gone.
It is never too early to look at how your familys inheritance can be protected from excessive tax demands, and a carefully drafted will is the best, most effective way of doing just that.
For advice on all aspects of tax and succession planning
contact Peter Gosling on 01384 327215 or via peter.gosling@higgsandsons.co.uk .