In what has been dubbed a ‘stealth tax’, thousands more Britons face paying inheritance tax after the Chancellor announced in the recent budget that he would not increase the level at which the levy is payable for the next four years.
Anyone leaving total net assets worth more than £325,000 will have to pay inheritance tax at a rate of 40 per cent until at least 2015 (unless the recipient of the estate is a surviving spouse or civil partner and/or a charity).
Despite this fact, there is no need to resign yourself to paying a large percentage of your estate in tax. There are several things that people can do during their lifetime to reduce the inheritance tax burden.
1. Make a Will
A recent survey found that 58% of adults in the UK had not made a will. If you fail to make a will, then your estate will pass under the intestacy rules which means you will have no control over where it goes. If your husband or wife survives you, they will not necessarily receive the whole estate and this can lead to liability for inheritance tax.
2. Use your annual allowance of £3000
Everyone can give away up to £3000 per year without it affecting their inheritance tax. If the previous year’s allowance hasn’t been used in full, the unused part can be carried forward giving a potential £6000.
3. Make gifts to charities (or political parties)
Gifts to charities are fully exempt from inheritance tax – whether they are lifetime gifts or gifts in a will. However, make sure that the charity is established in the UK – if the charity is based overseas then exemption will not apply. If you are concerned about the state of your favourite political party’s coffers following the election then gifts to the party are also exempt!
4. Gifts to children on marriage
Parents can give up to £5000 to a child on their marriage in addition to their annual allowance of £3000. This applies to each parent so £10,000 for a couple.
5. Regular gifts from income
If your income exceeds your outgoings then you can make regular gifts of income without affecting your inheritance tax position. There is no limit on the size of the gifts but they must be from income and not capital; must not reduce your standard of living; and you must intend them to be regular.
If you would like advice on making a Will or lifetime inheritance tax planning then contact a member of Steeles Law’s specialist Private Client team at wills@steeleslaw.co.uk or telephone Norwich 01603 598000, Diss 01379 652141 or London 0207 421 1720.