Inheritance related tax allowances & gifting thresholds
It is never pleasant to talk about managing your money after death, but for many people, thinking about how Inheritance Tax (IHT) may impact their loved ones when they are gone is a reality of life. It is better for our mental wellbeing to plan for this in advance than have it as a worry in the back of our minds. By understanding more about gifting allowances you can ensure you protect those assets you intend to pass on.
IHT is arguably one of the more complex areas of tax. The current Nil Rate Band is £325,000 and there is an additional Residential Nil Rate Band of £175,000. This means a married couple is only likely to pay IHT if the estate is above £1m. If your estate is above this amount your financial adviser can discuss ways to mitigate any IHT payable on death, such as the use of trusts or life cover. Solicitors are quick to put trusts in to place, ofcourse this is how they earn their income, however life insurance can be a quick and easy alternative option and often sometimes cheaper, especially when it comes to wrapping a trust up.
Extra tips for inheritance, especially around gifting:
Not many people know that you can also make use of various IHT allowances each tax year. Gifts of up to £3,000 in total can be made each year without any IHT implications. If the £3,000 exemption was unused in the previous tax year, this can be carried forward so the maximum available exemption can be up to £6,000.
A married couple could gift up to £12,000 in a single tax year with no IHT implications. You could choose to gift this to people you care about, watching them enjoy their inheritance. Or you could consider investing for children or grandchildren into a JISA (Junior ISA) or a pension. As well as the tax benefits of doing this you should also discuss family linking with your adviser as it is possible to make further savings if your family are invested on the same platform. One of the many hidden benefits of working with a financial adviser is the cost of using investment platforms or taking out insurance products can be cheaper than going direct as a consumer.
Other exemptions are available. For example, small gifts of up to £250 per recipient and gifts in consideration of marriage of up to £5,000 by a parent. Regular gifts out of a surplus income are not subject to IHT, so being able to show a pattern of gifts can remove this from your estate immediately. To be accepted, you must be able to show you have maintained your standard of living after the gifts.