Remember that you cannot continue to benefit in any way from the asset gifted because this will render the gift ineffective for IHT purposes. You cannot, for example, give away your home to your children but continue to live in it rent free. Use available reliefs Important reliefs of up to 100% are available on business assets such as shares in a family trading company or on agricultural property. It is important that these reliefs are utilised because once the asset concerned is sold the relief will be lost. They can only be used in connection with transfers that are chargeable to IHT. In lifetime it may be worth considering transfers of such assets into trusts for members of the family. On death such assets should not automatically be left to the surviving spouse because that transfer will be exempt and, if the survivor subsequently sells the asset, the relief will have been wasted. Consider using trusts As stated previously, many lifetime gifts are PETs. So if the donor lives for at least seven years after making the gift the PET is removed from any charge to IHT on death. However, the donor ceases to have any control over what the beneficiary does with the gift. This is where trusts can be useful. Most transfers into trust are immediately chargeable to IHT but if the value of the assets transferred into trust within a seven year period is below the nil rate band, there is no charge. The assets (and their subsequent growth in value) are removed from the donor’s estate.
that it is not wasted. This gave rise to practical problems in that if assets equal to the nil rate band were bequeathed to children in the Will, the surviving partner may be left short of funds. The rules were therefore altered several years ago to allow any unused nil rate band on the death of the first spouse to be transferred to the estate of the surviving spouse. The transferred nil rate band can only be used against the estate of the second spouse on death. Example Tomdied leaving the whole of his estate of £800,000 to his wife Pru. A few years later Pru died leaving her whole estate of £900,000 to her children. Under the current rules, the portion of any nil rate band unused on the death of Tomwill be allowable against Pru’s estate. In this case as Tom’s estate was left to Pru, none of his nil band was utilised, so 100% is available. This is in addition to Pru’s own nil rate band. Using the current rates the IHT payable on Pru’s death is based on £250,000 (£900,000 - [£325,000 x 2]). Use themain residence nil rate band An additional nil rate band may be available where a residence is passed on death to direct descendants such as a child or a grandchild. This band is £175,000 in 2021/22. The additional band can only be used in respect of one residential property which has, at some point, been a residence of the deceased. Any unused nil rate band may be transferred to a surviving spouse or civil partner. The additional nil rate band is also available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the
The rules are complex but significant tax savings can be achieved with careful planning. Trusts can also be an effective way of using important reliefs on businesses and agricultural properties. Tax Planning Using trusts can provide an effectivemeans of removing assets froman estate but still allowflexibility in their ultimate destination and allow the donor to retain some control. Use the nil rate band on death On death, assuming the nil rate band has not already been utilised in the last seven years, it pays to ensure
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Preserving the Inheritance
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