Making a Will is a good time to consider tax planning. You should plan your affairs so as to avoid paying unnecessary tax. We can show you how to make the most of your available exemptions and allowances and to plan your business affairs.
Inheritance tax is the tax payable on your estate in the event of your death. It is currently chargeable at 40% on the amount by which your estate exceeds the nil rate band (currently £325,000). However, the amount of inheritance tax can be reduced by making use of reliefs, exemptions, lifetime gifts and lifetime trusts. If you take the right steps you can ensure substantial savings in the inheritance tax payable when you pass away.
For example, you can make use of the lifetime gift exemptions below:
- to your spouse
- up to £250 to as many different people as you like in any given year
- up to a total of £3000 in any tax year
- on marriage of up to £5,000 to each of your children, £2,500 to grandchildren and £1,000 to anyone else.
- assets qualifying for agricultural property relief or business property relief
- surplus income, subject to certain conditions
You can also make other gifts, such as a lump sum or a property or share in a property. However, care needs to be taken to ensure that you are not inadvertently putting yourself in a vulnerable situation by giving away too much in proportion to the size of your estate. We can explain the seven year “potentially exempt transfer” rule and prevent you from falling foul of the “reservation of benefit” rule. Gifting needs to be carried out carefully, and we can explain why it is not always appropriate.
These should be considered for larger estates. We will advise you as to whether it would be appropriate to set up a trust, for example for your children and other relatives. If you make a gift into trust for the benefit of a large group of beneficiaries (as opposed to specific individuals), the assets are protected by reducing the risk of monies being lost through the divorce or bankruptcy of beneficiaries. We can explain the extent to which this protection applies.
Appropriately structured lifetime trusts can be useful to reduce the inheritance tax bill on the death of a surviving spouse by taking assets outside of their estate.
Sale of Business
If you are looking to sell a business then you should take advice at the earliest opportunity as considerable tax savings can be achieved in appropriate circumstances through the use of a trust structure.
There are also specific reliefs available for agricultural property, woodland and “heritage” assets (stately homes, land of outstanding natural beauty and famous art works).
Capital Gains Tax
You should bear in mind that giving away assets, other than cash, may result in a capital gains tax bill. We will work with your accountant and/or financial adviser as appropriate to ensure that all aspects of your financial affairs are taken into account.
Why Dawson Cornwell?
No one wants to pay more tax than they have to. Estate and tax planning is complex. Proper advice at the right time can save you and your estate thousands of pounds. We will give you the advice you need in conjunction with tax efficient Will drafting.