Fiducia Wealth Management
Posted in Tax Planning, BPRA, Inheritance Tax on 19.12.11

Inheritance Tax

Inheritance Tax is a tax primarily concerned with the position of a person’s estate at the time of death, but there are also situations where tax can be charged during aperson’s lifetime. In general terms, tax during lifetime is levied at 20%,while tax on death is charged at 40%.

There are, however, various exemptions and reliefs that can be usefully used to reduce the exposure to this tax.

Exempt transfers

These include the following:

Transfers between spouses/civil partners

  • Such transfers are exempt when made during lifetime and at death

Annual exemption

  • An individual can give away up to £ 3,000 per annum with no IHT implications
  • If the £ 3,000 is not gifted in a year, it can be carried forward into the next year, but no further, and only after that year’s exemption has been used in full

Small gifts exemption

  • An individual can make as many gifts of £ 250 per recipient as he/she wishes
  • Such a gift cannot, however, be used in conjunction with any other gift (for example, you could not make a small gift of £ 250 along with the annual gift of £ 3,000 to the same person)

Wedding/civil partnerships

  • An individual can make a gift free of tax to each/either of the parties to the marriage/civil partnership, within certain limits
  • The gifts should be made prior to or on the date of the marriage
  • The limits are based on the relationship the person giving the gift has with the recipient,and is as follows:
    • If a parent of one of the couple: £ 5,000
    • If a grandparent or remoter ancestor of one of the couple: £ 2,500
    • If one of the parties to the marriage: £ 2,500 to the other party if made before the marriage(after the marriage the spouse exemption mentioned previously applies)
    • Any other person:£ 1,000

Normal expenditure gifts

  • Gifts that are made from income are exempt provided that:
    • They do not reduce the donor’s usual standard of living
    • The donor’s capital is not used
    • The gift is being made on a regular basis
    • This gift is often the most difficult to define. For example, a regular £ 10,000 gift from a donor with income of £ 100,000 is more likely to be acceptable that the same size gift with someone having an income of £ 20,000

Charities, political parties and national institutions

  •  Gifts of any amount can be made to a registered charity
  •   Similarly, gifts of any amount can be made to major political parties
  •    Gifts to certain national institutions, such as libraries, museums and the National Trust are also exempt

Armed forces exemption

  • The estates of members of the armed forces are free of IHT where death has been caused by wounds received while on active service

Reliefs

Reliefs are generally available for business related ventures, the key ones being:

  • Business Property Relief
  • Agricultural Property Relief
  • Woodlands Relief

Business Property Relief

  • Offers potential for IHT relief at 100% or 50%
  • The property concerned must have been owned by the individual for at least two years prior to the transfer
  • Relief does not apply where the business is concerned mainly of dealing in securities, stocks and shares, making/holding investments or land or buildings
  • 100% relief maybe applied to:
    • A sole trader’s business
    • An interest in a partnership
    • A shareholding in an unlisted trading company
    • This includes shares in a company listed on the Alternative Investment Market (AIM)

50% relief may be applied to:

  • Land/buildings owned by the individual and used wholly/mainly by:
  • A trading company under that individual’s control
  • A partnership of which the individual is a partner

Agricultural property relief

  • Offers the potential for IHT relief at 100% or 50%
  • It is given on the agricultural value of farmland or farm buildings
  • Not all assets qualify; for example, part of the value of the farmhouse building may be disallowed
  • If APR and BPR are both available, APR is given first
  • 100% relief maybe applied where:
    • The individual has owned and farmed the land for at least two years before the transfer, or where vacant possession can be achieved within two years
    • Where the land is farmed by a tenant under a post 31/08/1995 lease and the freehold owner cannot obtain vacant possession within one year, provided that:
    • The donor has owned the land for at least seven years, and the land has been farmed throughout that period.
  • 50% relief may be applied where:
    • Land is being farmed by a tenant under the same conditions as paid out under the 100% relief mentioned previously, but where the lease started before 01/09/1995

Woodlands relief

  • The liability to IHT on timber can be deferred until the timber is disposed of
  • Of course, it maybe that the timber was grown on a commercial basis, in which case BPR might be available; if this is so then this would be the better relief to use

Enterprise Investment Schemes

These schemes give tax incentives where investments are made into unlisted companies,Immediate income tax relief is given at a rate of 20% on investments of up to £500,000 in a tax year. Provided that the investment concerned is held for a period of at least three years, then any gains on disposal will not be subject to a capital gains tax charge. Any losses incurred can be offset against CGT or income tax.

Investors cannot be connected to the company concerned prior to making the investment,and there are a number of rules surrounding this. It is possible in certain circumstances, however, for an investor to become a director of the EIS following an investment having been made.

EIS shares are eligible for IHT 100% Business Property Relief after two years of ownership.

 

If you would like to know more about how we as Financial Advisers can help you with Inheritance Tax visit the Estate Planning section of our website: Estate Planning or send us email at: email@fiduciawealth.co.uk

The information contained in website is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Fiducia Wealth Management Limited, or any associated companies or persons, its officers or its employees, for any loss occasioned in connection with the content hereof and any such action or inaction. Professional financial advice is necessary for every case.

Fiducia are an award winning firm of Financial Advisers based in Dedham near Colchester situated in the heart of Constable Country on the Essex Suffolk border. www.fiduciawealth.co.uk

Fiducia Wealth Management Ltd. Dedham Hall Business Centre, Brook Street, Dedham, Colchester, Essex, CO7 6AD.

Fiducia Wealth Management Ltd. is authorised and regulated by the Financial Conduct Authority.. FCA No. 408210

Fiducia Wealth Management
Posted in Tax Planning, BPRA, Inheritance Tax on 19.12.11