Inheritance Tax Threshold Alex Truesdale Wills In Cobham Surrey

Mitigating Inheritance Tax

Thresholds, Exemptions, Reliefs and Mitigation Strategies

Inheritance Tax has often been termed a “voluntary tax”. Avoid paying more tax than you should by using the available reliefs and exemptions.

Alex Truesdale Wills Limited offers a professional Will writing service based in Cobham and serving clients throughout Kingston, Greater London and Hampshire. 

Call: 07887 946557 to discuss your inheritance tax position and how it relates to your estate planning needs.

Mitigating Inheritance Tax

Thresholds, Exemptions, Reliefs and Mitigation Strategies

Inheritance Tax has often been termed a “voluntary tax”. Avoid paying more tax than you should by using the available reliefs and exemptions.

Alex Truesdale Wills Limited offers a professional Will writing service based in Cobham and serving clients throughout Kingston, Greater London and Hampshire. 

Call: 07887 946557 to discuss your inheritance tax position and how it relates to your estate planning needs.

How To Avoid Paying Unnecessary Inheritance Tax

If the value of your estate exceeds a certain threshold, Inheritance Tax becomes due on the excess amount. With Inheritance Tax currently payable at 40%, this may cause financial hardship to those you leave behind, especially when a house or other property must be sold to pay the tax bill. Why allow your life’s savings to be eroded in this way?

With proper lifetime and testamentary tax planning, plus the use of appropriate trusts in your Will, you can ensure that your loved ones receive the maximum possible benefit from your estate.

Nil Rate Band (“NRB”)

The level above which Inheritance Tax (IHT) is payable has remained at £325,000 since 2010. Above this level, IHT is payable upon all your assets, including any held in trust, as well as any gifts you made within seven years of your death. The first, tax-free £325,000 is known as the “nil rate band”.

Since October 2007, married couples and registered civil partners have been able to carry over any unused NRB on their joint estate when the second partner dies; to a maximum of £650,000.

Married couples and registered civil partners are also allowed to pass assets from one spouse or civil partner to the other during their lifetime or when they die without having to pay Inheritance Tax (no matter how much they pass on) as long as the person receiving the assets has their permanent home in the UK.

This is known as the spouse or civil partner exemption.

If you leave everything you own to your surviving spouse or civil partner in this way:

ο Your whole estate would be exempt from Inheritance Tax, and

ο Your NRB remains unused

That unused NRB is therefore available to increase the NRB of your spouse or civil partner when they die – even if your spouse had re-married. Your spouse or civil partner’s estate can therefore be worth up to £650,000 before any Inheritance Tax is payable.

In practice, the executors or personal representatives must apply to HMRC within 24 months of your spouse or civil partner’s death to transfer your spouse or civil partner’s unused NRB.

RNRB is an additional allowance against inheritance tax brought in by the Finance Act 2016.

In order to qualify, you must own a property or a share in a property, in which you have resided at some stage and which you will leave to your direct descendants (including children, grandchildren or step-children).

The RNRB for 2020/21 was £175,000 per person and rises annually in line with the Consumer Price Index. RNRB may be carried over between spouses and registered civil partners, allowing double the allowance to be claimed on the second death.

The RNRB value is limited to the lower of the value of the property left to direct descendants or the total RNRB available.

The RNRB is applied to the estate first and then the nil rate band (currently £325,000) is applied. If the value of the property is less than the RNRB the balance cannot be offset against other assets in the estate. RNRB tapers off for estates in excess of £2million at the rate of £1 for every £2 in the estate over that limit.

Please ask for further details on how any of the above strategies may impact the structure of your Will.

We are unable to give tax, pensions or financial advice; however, we work closely with and can refer you to, other professionals who are able to offer specialist advice, including independent financial advisors, pensions experts and private client lawyers with whom we work to prepare Trusts and conduct all aspects of estate administration.

Lasting Powers of Attorney

Estate Planning

Estate Administration

Inheritance Tax Exemptions and Reliefs

There are several exemptions and reliefs available to mitigate the impact of Inheritance Tax. Some of the possibilities we will discuss with you include:

  • Spouse or civil partner exemption. Inheritance Tax is not payable on anything left to a spouse or civil partner who has their permanent home in the UK, nor on lifetime gifts made to them
  • UK charity exemption. Gifts to UK registered charities, whether lifetime or by Will, are exempt from Inheritance Tax. If you leave 10% or more of your gross estate to charity the effective rate of IHT on the remainder is in return discounted from 40% to 36%.
  • Potentially Exempt Transfers. If you survive for seven years after making a gift to someone, the gift is generally exempt from Inheritance Tax, no matter the value. A reduced rate of Inheritance Tax is payable on the whole gift if the donor survives between three and seven years after making the gift, known as “taper relief.”
  • Annual exemption. You can give away up to £3,000 each year, either as a single gift or as several gifts adding up to that amount. You can also bring forward any unused allowance from the previous year.
  • Small gift exemption. You can make small gifts of up to £250 to an unlimited number of individuals, tax-free.
  • Wedding and civil partnership gifts. Gifts to someone getting married or registering a civil partnership are exempt:
    – up to £5,000 to each child
    – up to £2,500 to each grandchild
    – up to £1,000 to anyone else
  • Business or Agricultural Relief. If you owned a business, farm, woodland or National Heritage property, relief from Inheritance Tax of up to 100% is available depending on the circumstances.
  • Gifts funded by normal expenditure out of income. Such gifts can be exempt from IHT (relief must be claimed; it is not given automatically) although for them to be accepted by HMRC it will be necessary to show that the gift is part of the donor’s normal expenditure and is funded out of income not capital. The relief will not be given if you had been materially reducing your standard of living or running down savings to fund the giving but it can be claimed over giving designed to fund life policy premiums, make contributions into family pensions or make regular gifts into trusts.
Intestacy Rules 2020, Alex Truesdale, Solicitor based in Cobham Surrey

Alex Truesdale Wills Limited offers a professional Will drafting and estate planning service covering the Surrey, Kent, Greater London areas, the South Coast of England and Wales.

Call us on 07887 946557 or request a call back here.

Need help getting started on thinking about the future?

Send an online enquiry or email info@alextruesdalewills.com for expert advice and guidance on your Will writing and estate planning needs.

Strategies to reduce your IHT exposure

As part of our Will writing service, we will seek to minimise your IHT liability wherever possible – although never at the expense of your wider estate planning goals. Some of the strategies we may suggest include:

1. Planning ahead

Work out the value of your estate and the size of any potential IHT bill. Then think about where you want your money and property to go to – and why. If you are facing an IHT exposure then it is never too early to start considering strategies to bring that exposure down.

ο Could you afford to give away any of your assets during your lifetime?
ο How much income will you need to live on comfortably?
ο What about care fees?

Anything you pass on to a spouse, or registered civil partner, is free of Inheritance Tax. However, legacies between unmarried couples in excess of the NRB are not tax free, which can present a particular problem when a couple jointly own their home.

This can lead to bereaved partners or cohabitees having to pay an IHT bill just to continue living in their home.

You cannot be taxed on money that was never yours, so it is worth ensuring that as much as possible is outside your estate:

ο If you are married or in a registered civil partnership, consider transferring assets to your spouse or registered civil partner to ensure that the full amount of each of your NRBs can be utilised, particularly if this is a second marriage or registered civil partnership and each spouse wants members from their first family to benefit.
ο Pilot trusts can shelter the proceeds of life assurance or company death in service benefits from erosion due to inheritance tax and can also protect them against life events befalling the surviving spouse or registered civil partner:

      • – Write any new life insurance plans under trust;
      • – Arrange to transfer any existing life policies into trust;
      • – Ensure that you review all pilot trusts if you change policy provider or employer.
      • – If your employer pays a death in service benefit, complete a nomination form to make sure any money goes directly into trust and not into your estate.

ο Someone who benefits from a legacy can divert that gift to another person, by executing an “instrument of variation” within two years of the death of the donor. This may help to avoid any double taxation of that legacy.

For most of us, our family home is our biggest asset – and most at risk to satisfy an Inheritance Tax bill. The Government has clamped down on schemes to avoid the ‘gifts with reservation’ rules, which had allowed people to give away homes but still live in them. Now, income tax can be charged for living rent-free in a home you once owned.

However, with proper advice, there are still ways to reduce IHT. The most popular option is downsizing to release equity to other family members. There are also specific additional IHT allowances available including the RNRB (see above).

Most couples who own a home together do so as joint tenants. This means that, if one person dies, the other automatically becomes the outright owner of the property. The alternative is to “sever” the joint tenancy and register as ‘tenants in common’, each owning half the property absolutely.

This means that on death, your share may be left to someone else – or to a Will trust – to keep down the size of your partner’s estate.

Some investments are given favourable treatment for IHT purposes, including shares in unquoted businesses and those listed on the AIM, farms and farmland, and woodlands.

Any favourable tax treatment may have to be weighed up against the risks attached to such investments and their (usually limited) liquidity.

Apart from Will trusts, there are several kinds of lifetime trust which may be effective in carrying out your plans and saving Inheritance Tax.These trusts can be expensive to establish and run, however, and should not be used without first seeking specialist advice.

For more information visit our Will Trusts page.

The list above shows the various reliefs and allowances applicable to lifetime giving. Depending on the timing of the gift in relation to the time of death, up to 100% IHT can be avoided.

If you are able to estimate the size of your IHT bill, you might want to consider taking out insurance to cover all or part of it. Setting up a specific whole-of-life insurance policy written into trust can provide your executors with a lump sum on your death which lies outside your estate. The premiums paid for the policy are treated as a gift from income and will also be free from IHT. The advantage of insuring against IHT as opposed to reducing the size of your taxable estate is that you retain ownership of your wealth – and the ability to use it should the need arise.

All testamentary gifts to registered UK charities are free of Inheritance Tax. If you make donations equivalent to 10% of your overall estate, HMRC will in turn apply a discounted rate of 36% IHT to your remaining taxable assets.

Also known as Spending the Kids’ Inheritance – in other words: it’s your wealth and if the idea of leaving a large amount to HMRC makes you uneasy, there’s no more enjoyable way to reduce that tax bill than to spend your money yourself.

Mitigating Inheritance Tax: 10 Simple Steps

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Client Testimonials

“The support Alex gave me and my husband after our Wills and LPAs were finalised was second to none especially as he was diagnosed with a terminal illness a few months later. This ongoing support, advice and bringing in other specialists to assist was outstanding and I felt that we were in very good hands and would continue to be when the inevitable happened.

After my husband died, the comfort of knowing all was in order with the Wills was a great relief and her help in the immediate aftermath was much appreciated. It wasn’t just the professionalism but the genuine concern for my situation and that of the family. Alex then continued to guide me through the process and through some pretty complicated issues relating to the estate administration. She always responded to my copious emails and phone calls with clarity, efficiency and care.

The whole process was dealt with in a timely manner and to a very high standard and I felt that I was being looked after like one of her own family.

I can’t recommend Alex highly enough – a very talented professional dedicated to her work with a heart of gold.”

JD, July 2020

“Very clear explanation of what the options and implications were for us. It was also good to have someone focused on the end result we had to get to, as it’s very easy on your own to leave to another day.”

EM, September 2018

“I have known Alex Truesdale for over 6 years, during which time she prepared Wills and Lasting Powers of Attorney for my sisters and assisted us in the administration of my sister Elizabeth’s estate after her death in 2018.  I testify to her attention to detail, her knowledge and experience in her work and the warmth of her communications whether by letter, by telephone or in person.  She responds to us quickly and we have full confidence in what she does on our behalf and on her advice on various aspects. She has a good network of people when particular advice is needed beyond her field of expertise or training.  She became a friend to us as a family.  I gladly recommend her services to others.”  

KH, July 2020

“We would like to thank you for your professional help in getting us to a point of having signed Wills after many years of procrastination. Not only that your advice gave us the impetus to arrange a Civil Partnership and we now feel that we have got at least some of our affairs in order in these worrying times.”

KB, September 2020

“After many years putting off writing my Will I finally entrusted Alex Truesdale with the task of compiling it for me and my family. My main wish was to pass my estate on to my son, and have guardianship put in place, should the worst happen before he came of age. Alex guided us through the difficult and emotional process with the utmost professionalism and put us at ease from the outset. She was able to address all of the issues we put to her and brought up many we had not considered regarding our estate.

“As we were about to travel abroad, we were also on a very tight schedule for the wills to be drawn up and signed. Alex went above and beyond to make sure everything was in place for us in the allotted time, even to the point of being personally on hand to instruct ourselves and our witnesses during the signing procedure.

“In using Alex Truesdale Wills, we now feel totally secure if the worst should happen our affairs are in order. We will be continuing to draw on her knowledge as and when our wills need updating in the future and are delighted to recommend her first class service.”

BW, May 2018

“Alex arranged an appointment for my husband and I to update our Wills in view of a change in family circumstances.  She was organised, efficient and extremely sensitive to our needs. We discussed advance directives and lasting powers of attorney in-depth – things we had only considered in vague terms previously but realised how intelligent it was to sort them out early.

“I cannot fault Alex’s professionalism and caring attitude, and will be recommending her service to my friends and colleagues.”

SM, September 2019

“Thank you again for helping me sort out all our Wills and the funeral plan for my godmother. I cannot believe how timely that was bearing in mind today’s situation. Only good news from her care home so far, but to know that resources are there to help the staff directly if the worst happens certainly gives me peace of mind.”

SC , May 2020

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Will Writing And Estate Planning From Alex Truesdale Wills

Alex Truesdale Wills Limited offers a professional and personal Will writing service, giving you flexibility and control for the present and your loved one’s peace of mind about the future.

Contact Alex Truesdale today to arrange a free, no-obligation initial consultation, virtual meetings or face to face.