Inheritance Tax Planning
Inheritance Tax is becoming a major issue to families in Oxfordshire. Once only a concern of the very wealthy, IHT is creeping up on all of us thanks to two main factors. Firstly, the nil-rate band has been frozen at £325,000 since 2009/10. Secondly, house prices have enjoyed prodigious growth in recent decades.
Many more of us and our families will have to consider getting IHT advice and estate planning in the future.
If the value of your total estate including your family home comes to less than £325,000, there’s no inheritance tax liability. However, if your estate is worth more than this, IHT is due at 40% on everything above the £325,000 nil-rate band threshold.
Main Residence Nil Rate Band
Until the start of the 2017/18 tax year, inheritance tax on property was treated just the same as inheritance tax on other assets, such as cash in the bank.
However, from the start of the 2017/18 tax year, the government introduced an extension to the nil-rate band specifically for family homes. The new main residence nil-rate band (MRNRB) applies in cases where the main family home is passed to children (including adopted, foster or step children), grandchildren or into the joint names of the deceased’s child and their spouse.
The MRNRB started at £100,000 and is planned to rise in £25,000 annual increments until the start of the 2020/21 tax year when it reaches £175,000. Thereafter it will rise in line with inflation.
As mentioned, each individual has a nil-rate band of £325,000 that they can leave to beneficiaries before having to pay IHT (plus a £125,000 main residence nil-rate band from the start of the 2018/19 tax year.
Transfers of assets between spouses and civil partners are exempt from IHT, so you can leave as much as you like to your partner without having to worry about an inheritance tax bill (although an IHT liability will then likely arise on their death).
You can also transfer any unused nil-rate band and main residence nil-rate band to your spouse upon death, which means the inheritance tax threshold for couples in 2018/19 stands at a potential maximum of £900,000 (£325,000 + £325,000 + £125,000 + £125,000).
That means married couples/civil partners can potentially leave behind up to £900,000 in the 2018/19 tax year without having to worry about paying IHT.
If your estate is in excess of this figure there are many things that you can do to reduce or mitigate completely paying IHT. Some of them are simple and some are quite complex and will require specialist advice.
A combination of lifetime gifting, action through your will and possibly life assurance usually provides the best solution while also ensuring that your own position is protected. There are numerous exemptions and allowances that provide the opportunity to make gifts in a very tax-efficient way and that are often overlooked. Perhaps surprisingly, pension planning can often now play an important role in estate planning. As each situation is different, a full financial review will identify the most suitable strategy.
Universities Superannuation Scheme
We advise many current and retired Academics on all aspects of their retirement planning including how to structure their benefits at retirement. The scheme has obviously become very complicated in recent years and it appears that it will get even more so very soon….
For a large number of Academics, pension benefits are now split between the Defined Benefit (Income Builder) and Defined Contribution (Investment Builder) plans. For members who have been in the scheme a number of years, they are also likely to have benefits accrued on previous basis.
There has also been the added complication in recent years of the government bringing in a Pension Lifetime Allowance and an Annual Allowance that will impact on many higher earners. For many it is difficult to work out whether it is beneficial to stay in the scheme, opt out, or partially opt out. If there is a tax charge, should they pay it themselves or should they get the scheme to pay?
We’d love to hear from you. As a firm of Independent Financial Advisers we can give you the most suitable advice for your needs from the whole of the market.
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