An ever-increasing number of British families are finding themselves liable to pay Inheritance Tax (IHT), recent research reveals.
According to up-to-date figures from HM Revenue & Customs (HMRC), the Treasury collected a record £5.3 billion in IHT last year – up 13 per cent on the amount of IHT brought in the previous year.
This is largely due to the fact that, despite ever-increasing wealth and property prices, the UK’s IHT threshold or ‘nil rate band’ has remained frozen at £325,000 for several years.
Any estates valued at more than this amount will incur IHT at a hefty rate of 40 per cent of their total value – which is why IHT planning is becoming more and more important.
Tim Steele, a Partner with Palmers who specialises in Wills and estate administration, said: “There are a number of ways families and individuals can mitigate their IHT liability, but it is important to seek specialist advice, as circumstances will always differ from person to person.
“One option worth exploring might be to make gifts during your lifetime. Such gifts are not automatically subject to inheritance tax and it is a move that is becoming increasingly popular.
“Under current Inheritance Tax rules, you may gift excess income, providing you can provide evidence that you have left yourself with sufficient funds that will allow you to maintain your usual standard of living, without using any of your capital.
“In addition to maintaining your existing living standards, there are other rules that relate to this form of gifting:
- There must be a pattern of giving – meaning gifts should usually be made monthly or annually.
- Gifts must be made out of income – so a gift of assets, such as jewellery or investments, will not normally qualify.
“When making regular gifts from income, it is important to record your intentions, so that evidence is available should any queries arise following your death. HMRC will often challenge the gift if detailed information is not available.”
If you are considering lifetime gifting, it is important to seek specialist advice. For more information, please contact us.