insideKENT Magazine Issue 76 - July 2018 | Page 173

BUSINESS THE INS AND OUTS OF IHT BY ALISON TURNER, TAX DIRECTOR AT WILKINS KENNEDY, MAIDSTONE THE AMOUNT OF MONEY PAID TO THE EXCHEQUER BY WAY OF INHERITANCE TAX (IHT) IS RISING YEAR ON YEAR – SINCE 2014, RECEIPTS HAVE INCREASED BY MORE THAN 30 PER CENT. CAREFUL PLANNING COULD HELP YOU MAXIMISE ANY TAX RELIEF AVAILABLE TO YOU AND YOUR FAMILY. KNOW YOUR LIMITS The current threshold for IHT is £325,000 per person and £650,000 for a married couple – as long as the first person to die leaves their estate not covered by any other IHT reliefs to a spouse. This means that when all your assets, known as your ‘estate’, add up to more than £325,000, IHT may be payable on anything above that threshold at 40 per cent. In April 2017, an enhanced IHT Nil Rate Band was introduced for residences, known as the Residence Nil Rate Band (RNRB). It will be phased in over four years so that by 2020/21, each individual will have an additional £175,000 to add to the existing Nil Rate Band of £325,000. For married couples, this may allow up to £1 million of IHT relief to be available once we reach 2020/21, where the main home is passed to ‘direct descendants’. MORE ON RNRB Direct descendants include children, grandchildren or adopted children. Estates valued at more than £2 million will not benefit from the full allowance as a tapering will apply. For every £2 that the net value exceeds £2m, the additional nil rate band is tapered by £1, so by 2020/21 if your combined estate is valued at more than £2.7 million, the RNRB will be zero. Tapering does not affect the standard IHT nil rate band of £325,000. DO YOU RUN A BUSINESS OR OWN SHARES IN AN UNQUOTED COMPANY? What if you own a business or shares in a trading company and you would like these to pass to your children? With forethought, IHT reliefs can be claimed, in particular Business Property Relief which can lead to considerable saving on the full IHT rate of 40 per cent. A business asset attracts Business Property Relief at a rate of 50 per cent on death whereas a trading business or shares would attract 100 per cent relief. Certain conditions apply – one of these being that you must have owned the business or shares for at least two years to qualify for the relief. You can begin to see why specialist advice is highly recommended. It is important to note that Inheritance Tax relief should be available if assets are gifted before death, as long as the donor held the assets for two years before the point of gifting and the asset has retained its qualifying status in the hands of the donee. GIFT GIVING More commonly, people like to gift assets during lifetime in an IHT-efficient manner, while maximising reliefs and allowances available to your estate on death. HMRC recognises genuine gifts out of normal income, such as birthday or Christmas presents, as exempted gifts. This means there is no IHT to pay, as long as the gifts come from your income and do not affect your standard of living, regardless of your relationship with the receiver. If you do give a gift from your capital each tax year, it must be less than £3,000 for it to be exempt from Inheritance Tax straight away. This is an annual exemption, so if you give more than £3,000 and you die within seven years of giving that gift, it will still count towards the value of your estate and maybe subject to Inheritance Tax. You can carry forward an unused annual exemption but only for one year. SAVING THAT SKIPS A GENERATION You may wish to make gifts to your family to enable them to make the most of their own personal annual allowances. For example, every individual, no matter what age, has their own personal allowance and for 2018/19 income of up to £11,850 can be received tax free. Contributions can also be made to another person’s pension scheme to enable even someone with no earnings to receive tax relief on a gross pension contribution of up to £3,600 per year. Even small pension contributions made early enough could provide for a substantial amount of savings later on. Alternatively, you may want to encourage your children and grandchildren to utilise their annual ISA allowances to make tax free investments. For further information, please contact the tax team at one of Wilkins Kennedy’s offices in Ashford, Canterbury, Maidstone, Orpington and Sandwich. Local offices: Ashford: 01233 629 255 / Canterbury: 01227 454 861 Maidstone: 01622 690 666 / Orpington: 01689 827 505 Sandwich: 01304 249 997 You can also give up to £250 a year to any number of people, provided anothe r exemption isn’t also being claimed for gifts to the same person. The marriage of family members is another good opportunity to reduce your estate by making wedding gifts. Each parent can give up to £5,000; grandparents can each give £2,500, and anyone else can give £1,000. [email protected] www.wilkinskennedy.com wilkinskennedy wilkinskennedy 173