tax iht – Clever Splitter http://cleversplitter.com/ Wed, 09 Mar 2022 01:40:01 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://cleversplitter.com/wp-content/uploads/2021/07/icon-2021-07-28T170948.334-150x150.png tax iht – Clever Splitter http://cleversplitter.com/ 32 32 Inheritance Tax: How to Help Your Kids Buy a Home and Lower Your Bill | Personal finance | Finance https://cleversplitter.com/inheritance-tax-how-to-help-your-kids-buy-a-home-and-lower-your-bill-personal-finance-finance/ Thu, 03 Mar 2022 12:56:00 +0000 https://cleversplitter.com/inheritance-tax-how-to-help-your-kids-buy-a-home-and-lower-your-bill-personal-finance-finance/ Parents and grandparents can help adult children buy a home without handing over all their earnings to HM Revenue and Customs (HMRC). Plus, it could also lower their inheritance tax bill and leave them with more money to spend. When it comes to climbing the property ladder, more than a third of Britons (33%) rely […]]]>

Parents and grandparents can help adult children buy a home without handing over all their earnings to HM Revenue and Customs (HMRC). Plus, it could also lower their inheritance tax bill and leave them with more money to spend.

When it comes to climbing the property ladder, more than a third of Britons (33%) rely on the Bank of Mum and Dad or the Bank of Grandma and Granddad.

According to a recent legal and general survey, older Britons give an average of £19,000 to younger family members to help them get on the housing ladder.

However, anything over £3,000 could be subject to a hefty Inheritance Tax (IHT) bill of 40%.

That said, there are ways to increase this allowance and avoid paying the IHT altogether.

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Ms Corr said: ‘Trusts allow you to give money, property or investments to someone else to look after for the benefit of a third party.

“When you create a trust, there will be a trustee (who owns and manages the assets of the trust) and one or more beneficiaries (the person or persons for whom the trust is created).

“Often they are unable to manage it on their own due to their age, disability, etc.

“Once assets are placed in a trust, they no longer belong to you, and that is how they are tax-efficient.”

Due to the complex nature of inheritance tax and trusts, it may be wise to seek advice from an independent financial adviser before embarking on this course.

There is certainly benefit in reviewing the rules, thresholds and allocations as collectively the nation gave away £125million in ‘unnecessary’ IHT in 2020.

Britons can choose to make gifts seven years before their death, which would be classified as potentially exempt transfers.

They may also want to make the most of cash grants – people can offer up to £3,000 per tax year plus small gifts of £250 or less.

As wedding season approaches, it is also worth bearing in mind that taxpayers may provide wedding and civil partnership gifts.

This could allow them to donate an additional £5,000 without being subject to IHT.

They can also carry over an allowance from a previous year if it has not already been used.

For example, a parent could gift their child up to £11,000 tax-free in one year – a gift of £5,000 made in consideration of the marriage plus that year’s £3,000 annual exemption and that last year if it has not already been used.

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Family fortunes: are inheritance rights suitable for modern families? – Family and Marital https://cleversplitter.com/family-fortunes-are-inheritance-rights-suitable-for-modern-families-family-and-marital/ Thu, 24 Feb 2022 08:20:05 +0000 https://cleversplitter.com/family-fortunes-are-inheritance-rights-suitable-for-modern-families-family-and-marital/ To print this article, all you need to do is be registered or log in to Mondaq.com. “Maybe you’ll get married, maybe you won’t.Maybe you’ll have kids, maybe you won’tMaybe you’ll divorce at 40, maybe you’ll dance the ‘Funky Chicken’On the occasion of your 75th wedding anniversaryWhatever you do, don’t congratulate yourself too muchOr yell […]]]>

To print this article, all you need to do is be registered or log in to Mondaq.com.

“Maybe you’ll get married, maybe you won’t.
Maybe you’ll have kids, maybe you won’t
Maybe you’ll divorce at 40, maybe you’ll dance the ‘Funky Chicken’
On the occasion of your 75th wedding anniversary
Whatever you do, don’t congratulate yourself too much
Or yell at you either
Your choices are semi-random
So are to all others”

Mary Schmich (later Baz Luhrmann “Everyone’s Free (To Wear Sunscreen)”)

Pulitzer Prize-winning journalist Mary Schmich wrote these words in 1997 as an injunction to her readers to live their lives with no regrets. Her column, which was echoed in the lyrics of a global hit, provided advice on how to live a happier life and challenged traditional societal expectations, such as marriage and having children. children.

The Office for National Statistics recently reported that, for the first time, more than half of women in England and Wales are entering their thirties without children. Additionally, fewer people are getting married, and those who choose to do so do so later in life than ever before. Many will not marry at all, with cohabiting couples being the fastest growing type of family in the UK. Divorce rates have risen steadily and more and more people will have multiple spouses in their lifetime, while living alone is becoming an increasingly popular choice. Importantly, fewer people are having children and those who do are very likely to become parents much later than previous generations.

The common thread running through all these trends is that people are increasingly rejecting the “traditional” notion of the nuclear family. And where societal trends go, the law must surely follow if it is to continue to usefully serve society. Nevertheless, there is an argument that the Inheritance Tax (IHT) regime has not evolved over time, disproportionately benefiting those who conform to the so-called nuclear family structure, without taking sufficient account of a myriad of equally relevant life circumstances. That said, the importance of undertaking sound tax planning based on sound advice cannot be overemphasized, regardless of age and stage of life.

How does the inheritance tax system benefit traditional family structures?

Under the UK IHT scheme, on death each individual is entitled to a tax exemption threshold of £325,000 (known as the zero rate bracket). In simple terms, this means that for a single person with no children, they will only pay IHT if their estate exceeds £325,000. In this scenario, anything above the threshold is taxed at 40%.

For a married couple with no children, on the death of the first spouse, whatever remains to the surviving spouse goes to them tax-free. This means that, in many cases, the predeceased spouse’s zero rate band will remain unused within his or her own estate. However, this allowance may be transferred to the estate of the surviving spouse on his death (known as the zero-rate transferable tranche). This means a married couple has a total tax exemption cap of £650,000, above which tax is paid at 40%.

There is an obvious logic to the status quo in this scenario – many people consider that wealth developed during a marriage should be shared, and so they do not view assets passed to a spouse as an “inheritance” as such. It would also be clearly unpleasant for a grieving spouse to have to sacrifice their established quality of life in order to meet an IHT responsibility. This being admitted, it seems normal that the surviving spouse benefits from an increased allowance, his own assets being enlarged by the receipt of his spouse’s assets.

For a married couple with children, the above remains true. However, there is an additional non-taxable allowance of £175,000 available for those who leave their home to their children, known as the zero-rate residency band. Again, this is transferable between spouses, meaning a married couple with children can benefit from a tax-free allowance of up to £1million towards their combined estate. Again, there is clear logic to this exemption as many are very keen on leaving property to children and would not favor a child being forced to sell property to meet an IHT liability. .

Nevertheless, the direction of societal shifts poses important questions for the current IHT regime. Marriage is no longer the only way to build a common life with another, so should we recognize more the shared wealth that cohabitants or other people can enjoy? Indeed, one can also ask whether children are the only beneficiaries of patrimonial assets worthy of being protected by the IHT.

What can I do to mitigate my own liability?

The crux of the matter is that there are fewer tax breaks available for single people and for those without children. Nevertheless, there are many strategies available for those who believe they will be in this position for the long term and wish to mitigate their potential exposure to IHT. Examples might include large gifts to those with whom a person ultimately wishes to share their wealth when the time is right, or smaller, more regular gifts from surplus income on an ongoing basis. Bequests left to charity are exempt from IHT, and leaving a sufficiently large portion of an estate to charity will reduce the overall rate of IHT payable.

The appropriate strategy for each individual will, of course, depend on a plethora of considerations. Just like the modern family, there is no one-size-fits-all approach to tax planning. Shepherd and Wedderburn’s private wealth and tax team are well versed in helping clients identify and achieve their long-term goals, ensuring their estate is maximized for their loved ones, whoever they may be.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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Business Matters: AIM will reduce inheritance tax | Blogs https://cleversplitter.com/business-matters-aim-will-reduce-inheritance-tax-blogs/ Mon, 14 Feb 2022 08:00:00 +0000 https://cleversplitter.com/business-matters-aim-will-reduce-inheritance-tax-blogs/ Simon Crawford, associate director of financial planning at Investec Wealth, sees the alternative investment market as a tool for estate tax planning. As former Labor Chancellor Roy Jenkins said in 1986, “inheritance tax is a voluntary levy paid by those who distrust their heirs more than they love the taxman”. What he meant was that […]]]>

Simon Crawford, associate director of financial planning at Investec Wealth, sees the alternative investment market as a tool for estate tax planning.

As former Labor Chancellor Roy Jenkins said in 1986, “inheritance tax is a voluntary levy paid by those who distrust their heirs more than they love the taxman”.

What he meant was that it is legal and feasible to reduce your Inheritance Tax (IHT) bill through a wide range of means, leaving more of your estate to your loved ones. Here I will discuss an example.

Inheritance tax basics

Currently each individual has a zero rate band of £325,000 and a residential zero rate band up to £175,000 (which applies when passing on your principal residence to a descendant). Combined, these bands allow you to pass on up to the first £500,000 of your estate to your beneficiaries without IHT. This amount is doubled to £1 million per married couple or registered civil partnership.

Assets above this threshold will generally be subject to a 40% inheritance tax charge on death.

Investments without IHT

If the size of your estate is larger than the zero-rate bracket, one option to reduce inheritance tax is to invest in qualification Alternative Investment Market Companies (“AIM”). These companies are usually smaller companies with higher growth potential.

Benefits of AIM

Investing in AIM companies is a simple and clean way to retain or obtain relief from inheritance tax. There are no expensive structures and few complexities involved. Investments can be held in personal names, individual savings accounts (ISAs) or joint accounts, which means access to money, if needed, is simple.

Over the past 10 years, the AIM market has generated an average annual return of 7.5%1, while investing in a specific AIM plan such as the Investec AIM IHT Portfolio has achieved average net returns of 12.9% per year. Remember that past performance is not necessarily indicative of the future and should not be relied upon.

Learn more

If you want to grow your capital and protect part of your estate from inheritance tax, please contact simon.crawford@investec.com. I would be happy to explain your options in more detail.

The value of your investments can go down as well as up and you may not get back the full amount

invested. Your capital is in danger.

The information in this publication does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors; therefore, we strongly recommend that you consult your professional adviser before taking any action.

Tax treatment depends on each customer’s individual situation and may be subject to change in the future. All statements regarding tax treatment are based on our understanding of current tax law and HMRC practice and may be subject to change.


1Factset 2022

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Inheritance tax: how to help the children of a house without handing everything over to HMRC | Personal finance | Finance https://cleversplitter.com/inheritance-tax-how-to-help-the-children-of-a-house-without-handing-everything-over-to-hmrc-personal-finance-finance/ Thu, 10 Feb 2022 09:26:00 +0000 https://cleversplitter.com/inheritance-tax-how-to-help-the-children-of-a-house-without-handing-everything-over-to-hmrc-personal-finance-finance/ When it comes to moving up the property ladder, more than a third of people (33%) rely on Mom and Dad’s Bank – or even Grandma and Grandpa’s Bank. So how can grandparents and parents avoid handing over all their money to HMRC? HMRC is set to collect £6.9billion in inheritance tax in 2023 to […]]]>

When it comes to moving up the property ladder, more than a third of people (33%) rely on Mom and Dad’s Bank – or even Grandma and Grandpa’s Bank. So how can grandparents and parents avoid handing over all their money to HMRC?

HMRC is set to collect £6.9billion in inheritance tax in 2023 to 2024, a significant portion of which is due to donations gone wrong.

Every year Britons are allowed to give away £3,000 without incurring a hefty inheritance tax bill.

According to a legal and general survey, the average payment to young family members to help them move up the property ladder is £19,000.

This would mean Britons face a hefty inheritance tax (IHT) bill of 40% on the amount over £3,000, if they had already exceeded the inheritance tax threshold which is normally £325,000 £.

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Another way for generous grandparents and parents to avoid giving all their money to the taxman is to take advantage of the wedding gift allowance.

Emi Page, partner at law firm Winckworth Sherwood, explained: “A parent can offer their child up to £8,000 – a gift of £5,000 made in consideration of the marriage plus the use of their annual exemption from £3,000.

“Or possibly up to £11,000 if they can carry over an unused full annual exemption from the previous tax year.”

However, experts advise the older generation not to forget their own needs and make sure there are enough left over to enjoy their retirement.

Another way some may seek to pay less inheritance tax is to put the family home in the name of a child, but there are some complications with this method.

Tim Latham, Certified Financial Planner at Equilibrium Financial Planning, told Express.co.uk: “The problem with putting your house in your children’s name is the rules around gifts with reservation.

“These rules mean that if you continue to benefit from the property after the gift, for example still living in a house, the gift would not qualify and inheritance tax would still be due on the value of the property.

“For the house to be considered a gift for estate tax purposes, you must pay your children market rent after you gift your house to them.”

For anyone considering going down this road, Mr Latham advises Britons to beware and seek professional advice.

He added: ‘Your children may have to pay income tax on the rent you pay them, and there may also be capital gains tax payable between the date of the gift and the date of death. .

“Depending on the financial situation of your children, there is also a risk that you will lose your home in the event of divorce or bankruptcy.

“It’s important to think about what you want your money to achieve, who and how you want to help.”

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Inheritance tax: five ways to pay less tax at HMRC in 2022 | Personal finance | Finance https://cleversplitter.com/inheritance-tax-five-ways-to-pay-less-tax-at-hmrc-in-2022-personal-finance-finance/ Mon, 24 Jan 2022 09:52:26 +0000 https://cleversplitter.com/inheritance-tax-five-ways-to-pay-less-tax-at-hmrc-in-2022-personal-finance-finance/ While many people have their finances under control in January, people are being reminded that there are legal ways to reduce the amount of inheritance tax they have to pay to HMRC in 2022. Britons waste millions of pounds every year on inheritance tax, which could be avoided if they refresh the rules. Inheritance tax […]]]>

While many people have their finances under control in January, people are being reminded that there are legal ways to reduce the amount of inheritance tax they have to pay to HMRC in 2022. Britons waste millions of pounds every year on inheritance tax, which could be avoided if they refresh the rules.

Inheritance tax is a tax paid on the property, money and possessions of a deceased person.

People will have to pay 40% to HMRC on assets if they exceed the threshold – which is usually £325,000 if the assets were not left to a spouse, civil partner or charity.

It can be a costly mistake – in 2020 the nation gave away £125m in unnecessary inheritance tax (IHT) through ‘gifts gone wrong’.

That equates to a quarter of a million pounds each, which could be legally avoided with the right advice.

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Five ways to legally avoid paying inheritance tax:

  • Give £3,000 per tax year tax-free. This allowance can be carried over to a fiscal year.
  • Donations to charities and political parties are exempt from inheritance tax.
  • £250 per person can be donated each tax year is excluded from inheritance tax and does not count towards the £3,000 annual exemption on donations.
  • Consider donating money from your income rather than your assets if possible.
  • Wedding gifts are tax exempt up to a limit of £5,000 for a gift from a parent, £2,500 from a grandparent and £1,000 from anyone else.

A rule change has also been announced that should make life easier for thousands of people.

Anyone who receives their inheritance on or after January 1, 2022 will no longer need to declare the value of the estate they inherited, unless they apply for probate.

A probate is a person’s legal right to manage and control the assets of a deceased person.

However, if the estate owner died before December 31, 2021 or December 31, 2021, the rule change will not be valid.

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Inheritance tax warning as your costs could spiral out of control without a will | Personal finance | Finance https://cleversplitter.com/inheritance-tax-warning-as-your-costs-could-spiral-out-of-control-without-a-will-personal-finance-finance/ Sun, 16 Jan 2022 04:01:00 +0000 https://cleversplitter.com/inheritance-tax-warning-as-your-costs-could-spiral-out-of-control-without-a-will-personal-finance-finance/ Inheritance tax (IHT) is set at 40% of the value of an estate above a certain threshold, and other death-related charges are also applicable. But failing to write a last will and testament could be the last and hardest mistake a person makes. Express.co.uk spoke to Michael Culver, chairman of Solicitors for the Elderly (SFE), […]]]>

Inheritance tax (IHT) is set at 40% of the value of an estate above a certain threshold, and other death-related charges are also applicable. But failing to write a last will and testament could be the last and hardest mistake a person makes. Express.co.uk spoke to Michael Culver, chairman of Solicitors for the Elderly (SFE), who discussed the implications.

He said: “One of the biggest problems can arise when someone doesn’t have a will in place.

“Where there is a spouse or children, usually those people will take over the administration and take care of it.

“But if there is a circumstance where there is no spouse or children, there is often quite a long delay between the death of a person and the settlement of their estate.

“It could be for a variety of reasons, but generally there can be a bit of doubt about who is going to inherit and who settles matters.

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“But again, this can often be overlooked, especially if the family is caught up in the funeral side of things and wants to worry about legal issues down the road.

“It’s delays in getting things started that can create their own problems.”

A will is therefore a key and central document that Britons must have in place before they die.

In a way, it could be the perfect gift someone can leave for their loved ones when they are gone.

Mr Culver added: “Where there is a will, it tells the bereaved where to start and what steps to take.

“It gets the ball going much faster and helps people understand what they’re dealing with from day one.

“It also helps lawyers understand the circumstances of a family in this case.”

Under the intestacy rules, applicable when a person dies without a will, the entire estate will not necessarily pass to the surviving spouse or family members.

Mr. Culver also pointed out that there could be major financial implications for those who do not have this documentation in place.

He concluded: “Those without a will will find that the cost can really skyrocket, wildly out of control in some situations.

“It’s not like you have a list of assets in the will, but there could be references to sums of money. This can really help channel money to the right place.

“If there is an intestate, you really start blind, it takes a long time, so it can cost more.

“The family plans to spend more money settling the estate than they could otherwise inherit.”

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Readers’ Forum on Taxation: Inheritance Tax – Taxation https://cleversplitter.com/readers-forum-on-taxation-inheritance-tax-taxation/ Wed, 29 Dec 2021 08:00:00 +0000 https://cleversplitter.com/readers-forum-on-taxation-inheritance-tax-taxation/ UK: Readers’ Forum on Taxation: Inheritance Tax December 29, 2021 Berg kaprow lewis To print this article, simply register or connect to Mondaq.com. Writing for the Taxation magazine readers’ forum, BKL tax advisor Terry Jordan answers a reader’s question on Inheritance Tax (IHT) on moving a family home. “A married parent offered his child the […]]]>


UK: Readers’ Forum on Taxation: Inheritance Tax

To print this article, simply register or connect to Mondaq.com.

Writing for the Taxation magazine readers’ forum, BKL tax advisor Terry Jordan answers a reader’s question on Inheritance Tax (IHT) on moving a family home.

“A married parent offered his child the family home but continued to live there with him.

During this time, the married parent did not pay the market rent for his occupation. When the parent finally died, the house was worth more than the zero rate bracket for the residence. The inheritance tax became payable because the house was a donation with reserve of profit.

By an act of amendment, it was agreed that the child would bequeath the house to the surviving spouse of the deceased. Would this count as a transfer between husband and wife and be treated as exempt from inheritance tax? Are inheritance taxes then owed by the estate of the deceased or the surviving spouse on the house?

I look forward to readers’ responses. Application 19,861 – Confused.

Response from Terry Jordan: The FA 1986 “sharing” exemption, section 102B (4) could have been used.

“We are dealing here with two tax fictions.

A father who was apparently the sole owner of the matrimonial home gave it to his son and the two occupied the property. Since the father has not paid rent, the provisions relating to gifts of inheritance rights with reserve of benefits in FA 1986, art. 102 and Sch 20 consider that the property is part of the father’s estate on death even if the son was the legal owner.

With better guidance, the father could have taken advantage of the Section 102B (4) “partition” exemption by giving a share to the son and keeping a share. His donation would then have constituted a potentially exempt transfer and his retained part would have benefited from a discount for co-ownership.

By an act of amendment, the son passed the house to his widowed mother. Where such an instrument is executed within two years of death and contains inheritance and / or capital gains tax records, the transfer may be treated for such tax purposes as effected by the deceased. In effect, the variation constitutes a transfer by the initial beneficiary.

It is understood that in addition to the provisions made by will and under the provisions relating to intestate succession, the words “or otherwise” in IHTA 1984, s 142 (1) (a) cover assets previously held in as joint beneficiary tenants who have accumulated by right of survivorship. Any doubt that the “provisions” could cover assets covered by the rules for booking benefits are dispelled by Article 142 (5).

Consequently, the act passed by the son will not grant the exemption of the spouse in the estate of his late father. He made the situation much worse because he added value to his mother’s estate and made a donation himself with reserve of benefits unless he paid market rent for his future occupation. It is possible that the estates of both parents pay inheritance tax.

The article is also available on the Taxation website.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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Inheritance Tax ‘Ripe for Reform’ as Justice Department Revises Estate Planning Rules | Personal Finances | Finance https://cleversplitter.com/inheritance-tax-ripe-for-reform-as-justice-department-revises-estate-planning-rules-personal-finances-finance/ Fri, 03 Dec 2021 10:52:04 +0000 https://cleversplitter.com/inheritance-tax-ripe-for-reform-as-justice-department-revises-estate-planning-rules-personal-finances-finance/ Inheritance Tax (IHT) costs are often managed through wills that ensure that no more taxes are paid than necessary and that the assets are passed on to the intended beneficiaries. Wills can be drafted and processed through certain professionals, many of whom note that the government’s pandemic-themed changes have had limited impact. Remote witnessing of […]]]>


Inheritance Tax (IHT) costs are often managed through wills that ensure that no more taxes are paid than necessary and that the assets are passed on to the intended beneficiaries. Wills can be drafted and processed through certain professionals, many of whom note that the government’s pandemic-themed changes have had limited impact.

Remote witnessing of wills is a useful option, but not a ‘game changer’

An investigation by the Law Society of England and Wales into whether or not to extend remote testifying of wills beyond January 2022 found that only a small proportion of lawyers have chosen to use it for their clients. Under current laws, the signature of two witnesses is required in the physical presence of the person making the will (the testator).

In July 2020, the government took steps to enable remote viewing of wills by video to meet demand and simplify will writing during the pandemic. The changes were retrospective from January 2020 and will remain in place for two years.

Going forward, the Justice Department will soon consider whether it will extend remote testifying of wills beyond January 2022. Law Society President Stephanie Boyce has indicated whether it is worth it.

She said: “We cautiously welcomed the legislation when it came into effect last year, as it could support people who wish to make a will when the physical presence of witnesses is not possible, provided that the government ensures that legislation is drafted to minimize unintended consequences and maintain the validity of wills.

The Law Society interviewed 630 lawyers to find out their views and experiences on using remote will testimony during the pandemic and the results showed that demand for the option is limited.

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The results showed that 95% of those surveyed wrote wills during closings, but only 14% of those surveyed used remote testimony.

Of these, the vast majority (78%) had a positive or neutral experience. 58% said they would use remote observation if it continued to be an option after the pandemic, 35% said they would not and 7% said they did not know.

About three-quarters (73%) of all respondents said they would not use remote testimony after the pandemic. They spoke of an increased risk of undue influence, future claims and said it was more difficult to assess their client’s ability to make decisions when the process was conducted remotely.

Ms. Boyce concluded, “While the availability of remote testimony has not dramatically changed the legal profession’s approach to will writing, it has proven to be a useful option in certain circumstances. Lawyers have continued to exercise the highest standards of professional judgment in deciding what is in the best interests of their clients.

“Therefore, the Law Society continues to believe that in the longer term, the most effective reform of the law would be to give judges the power to recognize the intentions of the deceased even if they have a will that cannot be -be not certified in accordance with the Wills Act so that their estate is inherited as they had planned.

“We look forward to the next report from the Wills Reform Law Commission, which is expected within the next two years and which we hope will expand on this and other issues to improve will drafting in England. and Wales. “

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Missed opportunity – Government rejects inheritance tax reforms

This investigation came just as the government chose not to change other areas of estate planning. This week, the government decided not to make any of the recommended changes to the IHT proposed by the Office of Tax Simplification, particularly with regard to donation allowances and the zero residence bracket (RNRB).

According to NFU Mutual’s analysis, this is a “missed opportunity” to simplify some rules and make the tax both fairer and easier to understand. Sean McCann, Certified Financial Planner at NFU Mutual, argued that the IHT is “unnecessarily complicated and ripe for reform.”

Currently, a number of gift options are available to taxpayers looking to lower or limit their IHT bills. This includes gifts for weddings, children and political parties.

However, Mr McCann warned that the rules on giveaways are often misunderstood and underused.

He continued: “There is currently a wide range of tax-free gift allowances that can be used, but many people are not familiar with them and, therefore, do not use them. The Office of Tax Simplification has recommended to replace them with an annual fee – a free gift allowance that would make IHT easier to understand and plan.

The government has also refused to change existing RNRB rules, which in turn excludes many Britons from tax benefits. Mr McCann concluded by explaining how these rules work and what could have been changed to make the system “fairer”.

He said: “The zero rate residential band – which allows individuals to leave up to £ 175,000 of the value of their home tax-free to a direct descendant – is another area of ​​confusion. important, especially when someone downsizes or moves to a worrying residential area.

“The fact that it is only available to those with ‘direct descendants’ means that anyone without children cannot pass as much tax-free.

“Removing the zero rate bracket for residency and increasing the abatement from £ 325,000 to £ 500,000 for everyone would not only simplify the tax, but also make it fairer. “

Failure to act in these and other areas of IHT planning could cost the Britons dearly over the next few years, with the number of families paying IHT nearly doubling over the next five years. The predictions come as the British are already paying record amounts of IHT to HMRC.

IHT receipts

At the end of November, the HMRC released statistics showing that £ 3.6bn had been paid to the government via IHT between April and October 2021. This was £ 600m more than in the same one-year period. earlier and thus takes the total paid in the year 2020/21. away to £ 5.4 billion.

IHT revenue has been growing steadily since at least 2021 and according to NFU Mutual, up to £ 7.6 billion could be paid to the state in 2026/27.

Additionally, the total amount of taxes paid to the government has skyrocketed in recent months and Myron Jobson, a personal finance activist at Interactive Investor, explained how the pandemic has impacted tax bills.

He said: “The IRS got exceptional transport in the first half of the fiscal year – but the numbers are heavily skewed by the pandemic as much of the economy shut down last year due to the restrictions. related to COVID-19.

“The increase in government IHT revenue seems unsavory in the context of the pandemic, and the freezing of zero rate and zero residence rates until at least April 2026 means these bills are expected to continue to rise and increasingly look like a raid on hard-working families (who were already taxed at the time of earnings), rather than the very wealthy it was originally intended for. “


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How does the “7-year rule” of inheritance tax work to exempt donations https://cleversplitter.com/how-does-the-7-year-rule-of-inheritance-tax-work-to-exempt-donations/ Thu, 02 Dec 2021 08:00:00 +0000 https://cleversplitter.com/how-does-the-7-year-rule-of-inheritance-tax-work-to-exempt-donations/ A third of Britons over 55 do not have specific plans for how they will pass their wealth on to friends or family after they pass away, although they do want to. Research by Fidelity International also found that half of Britons were unaware or had never heard of the ‘seven-year rule’ of inheritance tax […]]]>

A third of Britons over 55 do not have specific plans for how they will pass their wealth on to friends or family after they pass away, although they do want to.

Research by Fidelity International also found that half of Britons were unaware or had never heard of the ‘seven-year rule’ of inheritance tax – although it could potentially exempt their citizens. beneficiaries of the levy.

The rule allows a donation of money, property or other assets to be exempt from inheritance tax (IHT) if the person offering it lives after seven years.

One-fifth of those intending to leave an inheritance worry about not understanding how much inheritance tax they might have to pay, or how to manage it effectively

This is a fundamental concept for anyone considering passing an estate on to the next generation, especially if their estate exceeds the current IHT threshold.

According to Fidelity, two-thirds of people aged 55 and over intend to leave a legacy with friends and family.

However, nearly a fifth of those intending to leave a legacy said they did not understand how much tax they might have to pay, and how to manage it effectively.

This is Money explains how inheritance tax works and what people need to know when considering how best to pass on their assets.

What are inheritance taxes levied on?

Inheritance tax is a tax on the estate of a deceased person, including their property, possessions and money.

It is typically charged at 40 percent on anything over the zero rate allocation bracket.

The standard zero rate range is £ 325,000 per person. However, there are several ways to increase your allowance.

First, any unused part of a deceased’s IHT allowance can be passed on to a spouse or civil partner, which can bring their limit up to £ 650,000.

Second, if a married couple or a PACS couple cedes their primary residence to their direct descendants, their limit is raised to a total of £ 500,000 each, or £ 1 million combined. This is called “the reduction of the principal residence”.

Confusion: According to Fidelity, nearly a fifth of people intending to leave an inheritance worried they might not understand how much tax they might have to pay

Confusion: According to Fidelity, nearly a fifth of people intending to leave an inheritance worried they might not understand how much tax they might have to pay

However, if the total value of an estate is worth £ 2million or more, the additional principal residence relief will be reduced to £ 1 for every £ 2 above the £ 2million threshold. .

This means that some higher value areas end up losing the edge altogether.

What is the typical heritage?

The average inheritance received in the UK is currently worth £ 70,639.

Even if someone left this amount for all of their four children, it would still be well below the limit of £ 325,000 for IHT.

But while tax is only paid by a small number of estates at present, the amount collected by the tax authorities has almost doubled in a decade, from £ 2.9 billion in 2011/12 to £ 5.33 billion in 2020/21.

In recent decades, more families have been caught in the inheritance tax net as rising house prices push more homes over the limit.

And with Chancellor Rishi Sunak freezing inheritance tax thresholds at current rates until 2026, that means more and more people will be dragged into paying tax.

Some analysts suggest that in the future, up to one in ten estates could end up paying 40% tax on some of the wealth they have passed on.

What does the seven-year rule apply to?

In most cases, the seven-year rule applies to all gifts that are greater than an individual’s annual grant allowance.

Usually this is £ 3,000 although if not used it can be renewed once giving them a limit of £ 6,000.

SUCCESS TAXES AND TAPERED LIGHTENING
Years between gift and death Tax paid
Less than 3 40%
3 to 4 32%
4 to 5 24%
5 to 6 16%
6 to 7 8%
7 or more 0%

For the purposes of the IHT, donations in excess of these allowances are referred to as potentially exempt transfers.

If they do not exceed the person’s allowance of £ 325,000 at the time of death, nothing needs to be done.

But if the person exceeded this allowance at the time of death, the donation will only be exempt from inheritance tax if the person who made the donation survived more than seven years after making it.

If a person dies between three and seven years after making a donation, the inheritance tax due is gradually reduced.

For example, the tax burden drops from 40 to 32 percent if a person lives three years after making a donation, and from 32 to 24 percent if they survive four years.

Dawn Mealing, Head of Advisory Policy and Development at Fidelity International, said: “Our research points to a real problem with estate planning in that many people don’t know where to start.

Fidelity research also found that only 12% of people aged 55 and over had discussed estate planning with a financial advisor, and only three-fifths had made a will.

Fidelity research also found that only 12% of people aged 55 and over had discussed estate planning with a financial advisor, and only three-fifths had made a will.

“Consumers have said they think the rules and regulations are confusing, and it is concerning that a third of those nearing retirement have no concrete plan to pass their wealth on.

“Ultimately, that could mean they have a lot less to leave with their loved ones than they would like.”

Do all inheritances have to be declared to the tax authorities?

Fidelity’s research also suggested that many Britons might worry unnecessarily about the need to report inheritances they receive to HMRC.

So far, around 275,000 of the average 570,000 deaths per year have resulted in the submission of inheritance tax forms with the estate value declared to HMRC, even with no taxes payable.

This despite the fact that less than 25,000 bereaved families per year are subject to inheritance tax, which represents 5% of all deaths, according to the Office of Tax Simplification.

But new rules are coming from January 2022, which means that nine out of ten estates that are not subject to inheritance tax will no longer need to fill out the forms.

Fidelity found that up to 85% of people aged 55 or older were unaware of the new rules.

TAXATION ON HMRC’S LEGACIES
Taxation year Government estate tax receipts (billions of pounds sterling)
2011/12 £ 2.90 billion
2012/13 £ 3.11 billion
2013/14 £ 3.40 billion
2014/15 £ 3.80 billion
2015/16 £ 4.65 billion
2016/17 £ 4.82 billion
2017/18 £ 5.21 billion
2018/19 £ 5.36 billion
2019/20 £ 5.12 billion
2020/21 £ 5.33 billion
Source: mutual HMRC / NFU

How can you pay less?

If you’re worried about inheritance taxes, you might want to give gifts to your family while you’re alive rather than leaving everything in your will.

Not only does this offer tax benefits, but it also means you can see them enjoying their freebies while you’re still around.

You receive a gift allowance of £ 3,000 each year which falls immediately from your estate for inheritance tax purposes.

You can also make small gifts up to £ 250, specific gifts for family weddings and unlimited regular gifts from your income.

As for those who need to reduce or avoid a large inheritance tax bill, we have previously compiled an overview of ways to do so, some of which can be easily undertaken by any ordinary person without the need for convoluted arrangements or paying for professional help.

Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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Inheritance tax: Parents will be hit by IHT as families donate early – how to lower your bill | Personal finance | Finance https://cleversplitter.com/inheritance-tax-parents-will-be-hit-by-iht-as-families-donate-early-how-to-lower-your-bill-personal-finance-finance/ Sat, 27 Nov 2021 08:00:00 +0000 https://cleversplitter.com/inheritance-tax-parents-will-be-hit-by-iht-as-families-donate-early-how-to-lower-your-bill-personal-finance-finance/ Inheritance Tax (IHT) is usually paid by a deceased person’s estate and passes on their assets, as long as the total estate is valued at over £325,000. To try to reduce the costs involved, many may turn to freebies, but changing their habits about it can lead to more people facing costly bills. Giving practices […]]]>

Inheritance Tax (IHT) is usually paid by a deceased person’s estate and passes on their assets, as long as the total estate is valued at over £325,000. To try to reduce the costs involved, many may turn to freebies, but changing their habits about it can lead to more people facing costly bills.

Giving practices are changing

The government will allow people to gift assets tax-free up to certain limits, and many people will gift money to reduce the value of their estate and (hopefully) avoid the IHT. However, while many people typically pass on their assets when they die, often through a will, more and more families are choosing to do so while they are alive, increasing the risk of being affected by the IHT.

Recent research from Canada Life has shown that more than a third of parents (38%) have already passed on significant financial gifts to the next generation. Among those who had donated, the main reason for doing so was to support their children or grandchildren with general living expenses (21%).

Almost two-fifths (18%) said it was not for a specific purpose and that they simply wanted to reduce the value of their estate. While 17% did so to finance the purchase of a car and 15% to finance other major purchases.

Speaking to those who had donated to their children, 37% said they could afford to save money so it had little or no impact on them. However, 17% said that since giving the money they have run out of funds for emergencies and 15% have had to cut back on spending since giving the money.

Andrew Tully, technical director at Canada Life, commented on the research.

READ MORE: Rishi Sunak’s 55% ‘nightmare’ pension tax trap – who pays, who won’t

He said: “The desire to pass on wealth to the next generation is not new, but traditionally it is done after death. Increasingly, many parents or grandparents wish to see their children benefit from the money at a younger age rather than waiting However, it is of concern for the financial future of the next generation that the most common use of these gifts is to provide for the costs of daily living rather than fund large one-time purchases.

“It is important that anyone wishing to make a financial gift to the next generation first seek financial advice. An advisor will help you determine how much you can safely donate without compromising the health or enjoyment of your own retirement, and ensure that this is done in a tax-efficient and efficient way.

“Research shows that more than 1 in 10 parents who donate believe it can have a negative impact on their own retirement planning. The right advice will help ensure people are fully aware of the consequences before making a donation. ‘to act.”

While pensions and retirement planning can be impacted by early giving, many may not be aware that it also has implications for estate planning.

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IHT rules on gifts

Currently, IHT may have to be paid on gifts given while a person is alive. The IHT may be levied if a gift, which includes money and personal property, is given less than seven years before the donor’s death.

No tax will be due on gifts if the person lives seven years after giving them, unless the gift is part of a trust. This is called the “seven-year rule”.

If a person dies within seven years of giving a gift and there is an IHT to pay, the amount of tax due depends on when the person made it. The IHT will be taken on a sliding scale known as the “conical relief”.

The taper relief rates are as follows:

  • Years between donation and death – three to four years, IHT rate on donation – 32%
  • Four to five years – 24%
  • Five to six years – 16%
  • Six to seven years – eight percent
  • Seven or more – zero percent

These deadlines are important to note because while the IHT due on gifts is usually paid by the estate, once a person has given more than £325,000, recipients who receive a gift from them during these seven years will have to pay the IHT.

IHT Receipts

While many families may assume they won’t have to worry about IHT at all, the latest data from HMRC shows the government is collecting record amounts of the tax.

In mid-November, tax statistics released by HMRC showed Britons paid £392billion in tax between April and October this year, up £99.8billion from the same period a year earlier.

Of this amount, IHT accounted for £3.6 billion, which is £600 million more than the same period in 2020 and an increase of 20%.

Shaun Moore, tax and financial planning expert at Quilter, responded to these statistics. While he noted that donations can indeed help with IHT planning, caution should be exercised.

He said: “One of the factors likely contributing to the increase in IHT revenue is the surge in the housing market. Despite the end of the stamp duty holiday at the end of September, the race to space continues and this week’s ONS data showed a record average UK house prices of £270,000 With inheritance tax thresholds frozen, which is seen as a stealth increase in taxes, more people will face IHT bills as a result of selling their homes.

“This tax year you can pass on £175,000 of your property tax free, which is effectively doubled to £350,000 when combined with your spouse or civil partner’s allowance. This is on top of your Inheritance Tax Allowance – or zero rate band – of £325,000, meaning it’s possible to pass on a £1million inheritance for free as a couple.

“However, the RNRB only works for those whose direct descendants inherit the family home, while the UK’s six million co-residents are less fortunate and ineligible for combined benefits.

“There are other ways to reduce your inheritance tax exposure, such as gifts to family members. Each tax year you can give up to £3,000 in gifts with your annual exemption, so ‘as a couple, you can gift £6,000 a year, and there’s no limit on excess income – above expenses – that can be gifted.

“Unfortunately, donation allowances have not kept up with inflation, and the currently rising inflation rates will do little to help matters in terms of IHT bills. If necessary, you can also consider gifts larger ones that would be Potentially Exempt Transfers (PET) or Billable Lifetime Transfers (CLT), but these will take seven years to see the benefit of the IHT. In addition to reducing the taxable value of the estate, gifts are especially useful for estates impacted by the RNRB shrinkage, as donations can immediately recoup the extra band.”

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