Why it pays to take expert inheritance tax advice from chartered tax advisers

BSR Bespoke chartered accountants and tax advisers in Tunbridge Wells know a lot about inheritance tax and can help prepare a bespoke plan based on your circumstances. In this article, we provide an overview on this tax and share a case study of how we have helped clients plan sensibly and efficiently for their future and that of their loved ones.

Inheritance Tax - an overview

Inheritance tax is a tax on the estate (the property, money and possessions) of someone who has died, payable if the value of the estate is above the £325,000 threshold. It is paid using funds from the deceased’s estate. Sounds simple enough but, like most taxes, it evolves year by year, and it pays to keep on top of all the latest developments. There are many steps you can take to ensure you will not pay more than you need. Smart, efficient inheritance tax (IHT) arrangements will benefit all those whom you wish to benefit from your will.

How can I minimise my inheritance tax?

There are multiple things you can consider to minimise your IHT, from the everyday to the more unusual:

• Be married or have a civil partner and leave everything to them. No tax will be payable, though this can exacerbate the issue in some circumstances.
• Any gifts to qualifying charities or community amateur sports clubs will be exempt from IHT. If total gifts of this nature exceed 10% of your estate, the rate of IHT on the balance of your estate reduces from 40% to 36%.
• Ensure your home passes to your children (including adopted, foster or stepchildren) or grandchildren. This will increase your threshold to up to £500,000.
• If your estate includes a trading business or shares in an unquoted trading company, these may qualify for Business Property Relief. Be wary of non-qualifying assets in the business that may taint the relief.
• Explore reliefs and exemptions, for example, Agricultural Relief. This applies in various circumstances such as if you own land for growing crops, a stud farm for breeding or a short-rotation coppice.

What about if you live abroad?

If your permanent home is (you are domiciled) abroad, you are only required to pay IHT on your UK assets (for example, a property in the UK).

How can BSR Bespoke chartered accountants and tax advisers in Tunbridge Wells help you with inheritance tax?

Our expert knowledge of the current inheritance tax regime enables us to provide a discreet and comprehensive estate-planning service which includes advice on:

• Planning and regularly reviewing a will.
• How to pass on your home(s).
• Making the most of exemptions and reliefs.
• Optimising lifetime transfers.
• Transferring assets into a trust or a Family Investment Company.
• Making tax-efficient gifts to charity.
• Making tax-efficient gifts to friends and family, including annual exemptions, the small gift allowance and gifts for weddings and civil partnerships.
• Not falling foul of anti-avoidance legislation, such as gifts with reservation of benefit.
• Keeping records.
• The seven-year rule.

Inheritance tax case study:

Jenny and Hugh (not their real names) contacted us for advice on reviewing their will and how to best arrange their estates for inheritance tax mitigation. Married for 30 years, the couple are semi-retired, and own a house in the UK and a holiday home in France. They also possess additional assets worth £1.2 million, including shares, pensions, savings and jewellery. They have three children and five grandchildren and are happily involved with many community organisations at their home in a Kent village.

We sat down with Jenny and Hugh and discussed the following:

• Ensure that they retain sufficient assets and income to maintain their lifestyle.
• Regular will reviews to account for changes in circumstances and their growing number of grandchildren.
• Passing assets directly to their children.
• Making tax-efficient bequests to their favourite charities.
• Making a gift to their village cricket club.
• Putting money aside for their grandchildren for the future, including wedding gifts and to help buying a property.
• Making gifts out of income, because both Jenny and Hugh continue to work part-time and also receive investment income.
• The options for passing on or disposing of their home in France.
• Tax-efficient investing.
• Making sure their pension nominations are up to date.

Jenny and Hugh have now tweaked their inheritance tax plans to enable them to ensure that their loved ones are well provided for in the future and make bequests to causes that are dear to them, all the while minimising the amount of inheritance tax that will need to be paid. Looking at their particular circumstances, we advised them to make regular gifts out of their excess income and consider establishing a trust to support their grandchildren’s education and to assist them starting out in adult life. With their independent financial adviser, we assisted in ensuring that their investments were as IHT-efficient as possible. Following our advice, Jenny and Hugh are attempting to bring their combined estate below £2 million to ensure that they maximise allowances at death.

Taken together, these measures have brought Jenny and Hugh peace of mind.