Inheritance tax: It’s time to give some thought to giving

Expert advice from Wilkins Kennedy on tax planning

LAST year, the Treasury collected more than £5bn in inheritance tax (IHT), making it one of Britain’s highest streams of national income since the early 1980s.

Giving some thought to tax planning can help relieve the sting from the taxman, but also provide some much-needed help to younger family members, says Peter Jones, tax director at Wilkins Kennedy’s Newbury office.

Rising property prices are dragging middle-class families into the IHT net, particularly here in Berkshire where the average property price is tipping half a million pounds.

If you do not want the Chancellor to be the biggest benefactor from your estate, now is the time to think about some tax planning measures.

Homeownership

Thirty-one per cent of people own their homes in West Berkshire and 38.5 per cent are mortgaged to a population that is predominantly aged between 30 and 59.

This shows us that homeownership is still remaining out of reach for many – a scene that is reflected nationwide, where homeownership under the age of 40 is at an all-time low.

Making gifts could be the most straight-forward way of helping younger family members on to the property ladder, as well as being one of the simplest forms of IHT planning you could undertake.

Giving gifts

You can give up to £3,000 a year and also carry over any unused allowance from the previous tax year.

This means a couple could reduce their estate by £12,000 in the first year and £6,000 in every subsequent year.

You can also give up to £250 a year to any number of people, provided another exemption isn’t also being claimed for gifts to the same person.

If you have a larger estate and need to reduce it by more substantial amounts, you can make gifts of cash or assets in excess of the above allowances.

These are known as potentially exempt transfers because, if you remain alive for seven years after making the gift, it falls outside your estate for IHT purposes.

If you die within the seven-year period IHT may be due, but it can reduce according to the time elapsed since the gift was made.

The earlier you start planning, the more your family will save.

Getting married

The marriage of younger family members is another good opportunity to reduce your estate.

Each parent can give up to £5,000.

Grandparents can each give £2,500 and anyone else can give £1,000.

It seems an obvious point, but those who need to reduce their estate, should also make sure that they are not unwittingly adding to it.

So, if you have a good pension and your retirement income exceeds your lifestyle needs, increased savings may be adding to your heritable estate.

As long as you retain sufficient funds to meet your needs, you can make regular payments from excess income without any IHT consequences.

This is a complex relief, but it can be used to help with long-term commitments such as school fees for grandchildren.

However, if you do undertake this form of estate planning, you will need clear supporting documentation.

Inheritance tax planning is an important but complex area.

For more information and bespoke advice, contact Peter Jones at Wilkins Kennedy on (01635) 265265.