Local Life - Wigan - December 2020

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Is Inheritance Tax
Voluntary?
It was the late Lord Jenkins that said, “Inheritance Tax is a
voluntary tax paid by people who distrust their beneficiaries
more than they dislike the Inland Revenue”.
Inheritance tax was always considered to be a tax on the
rich, but it really isn’t!
Levied at a fixed rate of 40 per cent, it is possible to become
a higher rate taxpayer after you die. If you are single or
divorced, UK legislation allows the first £325,000 (2020/21
tax year) of your estate to be free from Inheritance Tax.
If you are married, or in a civil partnership or widowed,
this amount could rise to £650,000. In addition to this, the
resident’s nil rate band will enable the nil rate band to be
uplifted further if you are living in your own property and
will be passing your estate on to direct descendants.
Inheritance tax can cost your loved ones hundreds of
thousands in the event of your death, yet it’s possible to
legally avoid huge swathes of it, or possibly pay none at
all. How do you manage this? Just by sensible planning.
The main exemptions
• Most transfers between spouses and civil partners.
• The first £3,000 of lifetime transfers in any tax year plus
any unused balance from previous year.
• Gifts of up to but not exceeding £250 p.a. to any
number of persons.
• Gifts in consideration of marriage or civil partnership of:
up to £5,000 by a parent, up to £2,500 by a grandparent
or great grandparent, or up to £1,000 by any other
person.
• Gifts made out of income that form part of normal
expenditure and do not reduce the standard of living.
• Gifts to charities, whether made during lifetime or on
death.
from when the transfer is made for the gift to fall outside
your estate. During the 7 year period the amount of tax
payable reduces each year. This is known as Taper Relief.
However, this relief only applies to the part of a gift which
is in excess of the nil rate band (£325,000).
Trusts
This method allows for the placement of monies out of your
estate into a suitable investment which is then wrapped
within a trust. You as trustee remain in control of the
investments on behalf of the beneficiaries and can decide
when and if any capital will be paid out in part or in full.
There are a wide variety of trust options available and
therefore careful consideration needs to be given to
ensure that the trust is suitable.
• Are you happy to waive your right to income and
capital from the trust?
• Would you prefer to receive a regular income from the
trust?
• Would you like access to capital from the trust?
Clearly, one size does not fit all and therefore further
advice should be taken.
Inheritance Tax is quite a technical area and therefore
before embarking on a course of action I would strongly
recommend that you seek professional advice. We
have advisers with advanced qualifications within the
taxation and trusts arena who if need be will be more
than happy to guide you.
Should you wish to have a chat
with one of our qualified financial
planners please feel free to give
us a call on 01257 423800.
Making Gifts
In most cases, any direct gift either made direct or into
an absolute trust by any one person over the exempt
gift allowances, is a Potentially Exempt Transfer (PET).
This means that you as the donor, need to live 7 years,
David Barton
APFS Cert CII (MP)
Chief Executive Officer
Remember all investments can fall as well as rise in value so investors could get back less than they invest.