Many individuals, including high-profile figures like TV presenter Anne Robinson, are considering passing on substantial amounts of their wealth ahead of anticipated changes to inheritance tax (IHT) in Labour’s upcoming Budget on 30 October. Robinson, for example, has reportedly transferred £50 million to her children and grandchildren. So, should you be thinking about doing the same?
Review Your Estate’s Value and Inheritance Tax Exposure
Before making any decisions, it’s essential to assess your estate’s value and potential IHT liability under the current rules. Each individual is entitled to a nil rate band of £325,000, and there’s an additional residence nil rate band (RNRB) of up to £175,000. This applies if the family home, or assets of equivalent value, are left to direct descendants upon death.
For married couples or civil partners, there’s an unlimited exemption for transfers made during lifetime or upon death to a surviving spouse. If any part of the deceased spouse’s nil rate bands remains unused, they can be transferred to the surviving partner, potentially increasing the tax-free allowance to £1 million.
However, this isn’t as straightforward as it sounds. If your estate exceeds £2 million, the RNRB reduces by £1 for every £2 that the estate exceeds £2 million, disappearing entirely at £2.7 million. For estates exceeding this threshold, only the combined nil rate band of £650,000 would apply. The current IHT rate on estates above the nil rate band is 40%.
Business and Farming Assets: What’s the Current IHT Relief?
Currently, 100% IHT relief is available for business and farming assets transferred during lifetime or on death. This relief helps prevent survivors from being forced to sell assets to cover IHT liabilities. However, there’s concern that these generous reliefs could be revised or even removed under the new government.
What About Lifetime Transfers?
Under existing rules, if you transfer assets during your lifetime and survive for at least 7 years, no IHT is payable. These are known as potentially exempt transfers (PETs). However, if you pass away within 7 years of making the gift, IHT would be due.
It’s important to note that these gifts must be outright, with no continued use of the asset by the donor. For instance, gifting your family home but continuing to live there would typically be ineffective unless you meet specific conditions, such as paying market rent.
There could also be capital gains tax (CGT) consequences to consider when gifting during your lifetime, though you may be able to use holdover relief to defer the gain. This relief is currently available for business assets and transfers of assets into trust.
Act Now: Consider Your Options Before Budget Day
With potential changes to inheritance tax on the horizon, now may be the right time to consider your options. At A&C Chartered Accountants, we can help you navigate the complex IHT landscape and assess whether transferring wealth now could be beneficial for you and your family. Contact us today to discuss your situation and ensure you’re prepared before Budget Day.
Need more information?
At A&C Chartered Accountants, we’re not just accountants; we’re your partners in success. Based in Manchester, our experienced team handles everything from managing limited company and sole trader accounts to expertly navigating tax returns. Beyond financials, we play a crucial role in driving your business’s growth, strategically steering it towards success with confidence and clarity.
