Making sure that you have made plans for looking after your family once you are gone will give you peace of mind. But providing your family with lasting benefits means taking action now.

For most people, protecting your estate is ultimately about securing more of your wealth for your loved ones and whilst it’s not nice to think about, it’s important to plan for what will happen after your death – to make the lives of your loved ones much easier.

Inheritance Tax Allowance – Nil Rate Band

The inheritance Tax (IHT) threshold, or Nil Rate Band (NRB), is fixed until 2028 at £325,000 per personSo, you don’t have to be that wealthy for your estate to be liable for IHT and it isn’t something that is paid only on death – it may also be paid on gifts made during someone’s lifetime.

On death, any assets valued over the NRB will be subject to tax – currently at 40%. This will include any gifts made within seven years of your death.

Where a person dies and leaves at least 10% of their net estate to a qualifying charity, a reduced rate of 36% IHT is payable.

It is possible to pass on any unused NRB belonging to a spouse or registered civil partner (first death) to the surviving spouse or registered civil partner. In practice, this means that for most people, they will have a NRB of £650,000 per couple.

Residence Nil Rate Band (RNRB)

The RNRB will be available when and if you pass your house to your children, grandchildren or great-grandchildren. It will also be available if you downsize or cease to own a home, as long as the replacement is passed to your children, grandchildren or great-grandchildren.

It is a complicated relief to understand, so we’ve tried to cover the key points below.

The amount of relief is £175,000 per person. As a couple, this comes to £350,000 and is transferrable, much like the NRB.

The RNRB will start to reduce if your net estate is more than £2 million and will reduce by £1 for every £2 it is over.

An individual who owns their own house and intends to pass it on to their child(ren) will have £500,000 IHT allowance (£325,000 NRB and £175,000 RNRB), and for a couple this will be £1 million (£625,000 NRB and £350,000 RNRB).

As with the NRB, the RNRB is transferable between spouses and civil partnerships, if unused on first death.

Making gifts – If you can afford to make gifts during your lifetime, this can reduce your IHT liability

You can make a gift of up to £3,000 a year without any IHT liability, and if you don’t use this whole allowance it can be carried forward to the next tax year. You can also make gifts from regular income or give gifts of up to £250 a year to any number of people with no IHT liability.

Some larger gifts can come with potential tax implications and should be discussed with your financial planner or tax adviser before you consider these.

Other options

You could also consider taking out a life insurance policy written in trust so that the proceeds from the policy can be paid directly to the beneficiaries to help pay any IHT due.

Formal Trusts can be appropriate for people with complex family situations or where they want to formally gift money in their lifetime, reducing IHT on death.

Another option, which can be useful for those who might not live for 7 years, is to invest in specialist investments called business-relief qualifying investments. These investments are exempt from your estate if held on death and you’ve been invested for at least 2 years. These types of investment are not appropriate for everyone, and advice should be sought if this type of thing you want to consider.

The sooner you start planning, the more you can do

Whether you want to provide for the next generation or leave a charitable legacy when you die, or you simply want to minimise an IHT bill, the sooner you start thinking about this the more you can do.

For most people, your financial affairs will be constantly changing, and therefore it is very important that your financial strategy is able to adapt similarly to changes in your situation.

At Magenta, we are able to guide you through the complex area of Inheritance Tax and help you to put a strategy in place to meet your wishes for your loved ones – contact us today!

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