lnheritance tax (lHT) planning
IHT is payable if a person’s assets at death, plus gifts made in the seven years before death, add up to more than the nil rate band, currently £325,000.
When a surviving spouse or civil partner dies, their estate will benefit from any unused IHT nil rate band of their previously deceased spouse or partner. The transferred proportion is uplifted to the same fraction of the nil rate band in force at the date of the second death. There is, however, the limitation that the maximum transfer is £325,000.
Most IHT planning is not related to the tax year end, though this is as good a time as any to review your Will. There are a number of reliefs and exemptions, some of which are related to the tax year.
Gifts totalling up to £3,000 in a tax year are exempt from IHT. If you made no gifts to use this exemption in 2010/11, you can make IHT-free gifts of up to £6,000 before 6 April 2012. If you have already used your exemption for 2011/12, you could delay your next gift until after 5 April 2012 to take advantage of the 2012/13 exemption.
Regular gifts out of excess income can also be exempt. You need careful documentation to prove that you make the gifts from income rather than capital.
If IHT planning in the past has left you liable to income tax on ‘pre-owned’ assets, consider whether you could save money by paying something for the benefit you receive – eg rent on a property previously given away but which you continue to live in.
This is a complicated area of tax and you should obtain specialist advice to ensure you and your family do not pay more IHT than is required.