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