Inheritance tax now affects more of the population than when it was first introduced in the form of The Inheritance Tax Act 1984. The main reason for the increase in the impact of the tax has been the significant rise in property prices within the last ten years. This has in turn resulted in the tax becoming a more sensitive political issue.
There are two rates of inheritance tax, 0% and 40%. No tax is payable upon the estate of the deceased between 0% and 312,000, which is the nil rate band for this financial year. Tax is paid at the rate of 40% upon the estate above the amount of 312,000.
One of the main features of the inheritance tax regime is the spouse exemption. Lifetime gifts made between spouses are usually exempt for Inheritance Tax purposes as are gifts made upon death.
Lifetime measures can be undertaken by an individual or a couple in order to reduce the potential inheritance tax liability.
The following lifetime measures can be adopted in order to reduce an individual’s inheritance tax liability:
- Using the annual exemption of 3,000. Each individual has his (or her) own annual exemption. If it is unused in any financial year it can be carried forward to the next financial year. A maximum of 6,000 can be given away by each individual.
- An individual can make any number of small gifts of 250 in any tax year provided that the gifts are to different recipients.
- Gifts can be made in consideration of marriage e.g. 5,000 can be made by a parent of either party to the marriage.
- Normal expenditure out of income paid to a recipient can be exempt from inheritance tax provided that it is part of the income of the individual and that individual has sufficient income to maintain his present standard of living.
- Gifts to charities.
- Gifts to political parties.
- Putting in place potentially exempt transfers (PETS). An individual can make a lifetime gift of assets within his estate e.g. 100,000. The gift will fall outside his estate for Inheritance Tax purposes provided that the individual lives for a period of seven years from the date of making the gift.
The above measures, used effectively, can go some considerable way to reducing the inheritance tax liability of an individual. It is a case of being aware of the measures available within the inheritance tax regime and planning accordingly.
For further information upon this subject contact Peter Kirrane or Dot Sharpe at:
Jordans Solicitors
Neil Jordan House
Dewsbury
West Yorkshire
WF13 1HL
Tel. 01924 457171
Call us on 033 03001103