£2 million. The withdrawal rate is £1 for every £2 over this threshold. Example Tom died leaving the whole of his estate of £800,000 to his wife Pru. A few years later Pru died leaving her whole estate of £1,100,000 to her children including the family home worth £600,000. As Tom’s estate was left to Pru, 100% of his NRB and RNRB is available. This is in addition to Pru’s own NRB and RNRB. Therefore IHT on Pru’s death would be calculated on just £100,000 (£1,100,000 - [£325,000 x 2] - [£175,000 x 2]). Charitable giving Legacies to registered charities will reduce the value of the chargeable estate and thus save 40% IHT. In addition the legacies may result in a lower IHT liability on the estate which remains chargeable. A reduced rate of IHT applies where 10% or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. In those cases the 40% rate will be reduced to 36%. Use life assurance Life assurance arrangements can be used as a means of removing value from an estate and also as a method of funding IHT liabilities. A policy can be arranged to cover IHT due on death. It is particularly useful in providing funds to meet an IHT liability where the assets are not easily realised like family company shares.
The rules are complex but significant tax savings can be achieved with careful planning. Please get in touch if you are interested in making gifts to trusts. Use the NRB on death On death, assuming the NRB has not already been utilised in the last seven years, it pays to ensure that it is not wasted. This gave rise to practical problems in that if assets equal to the NRB 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 the proportion of unused NRB on the death of the first spouse to be transferred to the estate of the surviving spouse. The transferred NRB can only be used against the estate of the second spouse on death. Use the main residence nil rate band (RNRB) An additional nil rate band, the RNRB, may be available where a residence is passed on death to direct descendants such as a child or a grandchild. The RNRB is £175,000 in 2023/24 and is frozen until April 2028. The RNRB can only be used in respect of one residential property which has, at some point, been a residence of the deceased. Any unused RNRB may be transferred to a surviving spouse or civil partner. The RNRB 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 value of the RNRB, are passed on death to direct descendants. There is a tapered withdrawal of the RNRB for estates with a net value (after deducting any liabilities but before reliefs and exemptions) of more than
Tax Planning Each spouse/civil partner can take advantage of the NRB. Furthermore, gifts between them are generally exempt. Therefore it pays to use this exemption to broadly equalise estates so that both partners can make full use of exemptions and the NRB. 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. Consider using trusts As stated previously, many lifetime gifts are PETs (so may be removed from the charge to IHT entirely). 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 NRB, there is no charge. Where above the NRB, a lower IHT rate applies to lifetime gifts than the death estate.
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Preserving The Inheritance
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