Murray Beith Murray LLP is a leading Scottish private client law firm.
For 175 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.
Murray Beith Murray LLP is a leading Scottish private client law firm.
For 175 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.
Recent analysis has disclosed that one in twenty-five of us will pay Inheritance Tax (IHT) on our estate. In the last year, HM Revenue and Customs has collected nearly £1bn more in IHT receipts than in the previous year. This signifies an increase in the value of estates falling into Inheritance Tax. This is partly driven by recent record increases in residential property values and partly by IHT thresholds that have remained static for several years.
With all this in mind, it is essential that you make sure your estate is tax efficient.
The first stage in reviewing your IHT exposure is working out the value of your taxable estate. This will include your house and any other property you own, your assets such as stocks and shares, insurance policies, any interest you have in a business, any valuable items such as antiques, art or jewellery and, finally, cash (including ISAs which are not exempt from IHT). This list is not, of course, exclusive. Critically, pension benefits are generally not subject to IHT.
Next, you need to list and deduct liabilities. When you do this, you will reach the net value of your estate at the present time. If that value is more than £325,000 (the current IHT threshold), you may be liable for IHT. Remember, IHT is charged at 40% on the balance over £325,000 unless any exemptions apply.
You also need to consider any gifts which you’ve made in the last seven years. If you have gifted any part of your estate over and above allowable annual gifts, within the last seven years and they value more than £325,000, IHT will be charged on those gifts too. Taper relief may apply depending on when the gifts were made.
No IHT is charged for transfers between spouses or civil partners. That means if you leave your entire estate to your spouse, your estate will be free of IHT. However, that might not be the most tax efficient way of dealing with your estate. If you pass your entire estate to your spouse or partner, you might simply be passing an IHT problem on to them.
The house is often the most valuable asset you own. If you decide to leave your house to your children or grandchildren, your IHT allowance is increased by a further £175,000 unless the net total of your chargeable estate is more than £2,000,000.
You should also consider whether to donate any part of your estate to charity. All donations to charity or community sports clubs are deducted from the value of your estate and if you donate 10% or more of your estate to a charity or community sports club, the rate of IHT will reduce from 40% to 36%. This can amount to a significant saving on very large estates.
Consider taking decisions on transferring assets now, whilst you are alive. If you own assets that you would eventually like to be transferred to others, consider whether there is an opportunity to transfer them now. Once transferred, provided you survive the gift for at least seven years, no IHT will be due on the value of those assets. You must be careful, however, to ensure that you do not fall foul of the gifts with reservations rule. This comes into play when you gift something to someone to avoid IHT but still enjoy the use of it. A common example of this is transferring ownership of your house to your children but continuing to live in it yourself. If you do that you would not be able to claim this relief unless you paid your children a market rent.
You might also take advantage of some annual exemptions available. These include annual gifts of up to £3,000 in each tax year or making regular payments to someone from your excess income. You can also make an unlimited number of small gifts of up to £250 in each tax year. You must be careful with this, however, to ensure the individual has not benefitted from another gift allowance.
You can make wedding gifts free of IHT up to certain limits (£5,000 to a child, £2,500 to a grandchild and £1,000 to any other person). In addition, you can combine the wedding gift of £5,000 to a child with the £3,000 annual gift allowance in the same tax year. However, you cannot combine the wedding gift allowance with the small gift allowance.
Murray Beith Murray Partner, Andrew Paterson, specialises in estate planning, asset protection and trusts. Andrew also heads our Executry group and has assisted many families with the legal issues arising following the death of a relative.
As you might appreciate, the rules around IHT planning are complicated and it will pay to take professional advice. We have specialist solicitors who deal with these types of estate planning challenges every day and they will be pleased to advise you on your options. If this blog has raised any questions or you have a matter to discuss please get in touch using the enquiry form or call on 0131 225 1200.
Murray Beith Murray was established in 1849 as advisors for generations of clients, committed to our values of integrity, expertise and trust. This aim and these values continue to this day, as does our commitment to be here when you need us.
