In order to ensure that your loved ones will inherit your legacy according to your wishes, without being stung with large tax bills, inheritance tax and succession planning is vital.
Inheritance tax (previously estate duty or capital transfer tax) is charged when capital changes hands between individuals. This includes certain lifetime gifts, the transfer of wealth when a person dies, certain transfers into and out of trusts and certain transfers made by close companies.
Your inheritance tax rate depends on a number of factors, including the value of the capital being transferred (see below), whether or not you are UK domiciled* and other considerations.
*The term ‘domicile’ can be complex but generally speaking refers to the country you call ‘home’. UK domiciled individuals are charged inheritance tax on property anywhere in the world. Non-UK domiciled individuals are charged on UK property only.
The current IHT threshold stands at £325,000 (fixed until 5 April 2018). Over a 7 year period, if the total value of your capital transfers exceed this figure, they will trigger an IHT charge of 40%.
The first £3,000 of lifetime transfers in any tax year is exempt. There are numerous other exemptions including small cash gifts and donations. Spouses and civil partners are charged separately (so each person can use their exemptions). No charge is incurred if a married person leaves their entire estate to their spouse.
Even though the wealth allowance will increase by 1% over the next decade, inheritance tax and legacy planning is vital to shelter your future generations from this 40% tax charge.
We understand that you want to look after your legacy without reducing the quality of your lifestyle, and as such our strategies do not require you to make significant cash gifts.