You are in your late 60s or 70s and have no child. So, you have decided to pass on your entire state — let’s suppose, worth around £2 million — to your nieces. Now the question arises, is it possible that you can pass on your estate to your nieces without actually paying the heavy inheritance tax? Let’s find out what our experts have to say about this tricky and difficult question.
Well, if you decide to do nothing (like approaching tax advisers for inheritance tax planning), HMRC will subject the taxable estate (the total worth of your estate minus the nil-rate band) to Inheritance Tax (IHR) at a mammoth rate of 40 percent after you die. HMRC will calculate IHT after deduction of available reliefs.
At present, your nil-rate band for Inheritance Tax is £325,000. Well, in the case of the above scenario, your state will be unable to avail of the nil-rate band owing to the fact that you are not passing it to your direct descendants.
Now let’s assume that you — at the time of your death — have not used your nil-rate band, then your taxable estate will be £1.675 million [after deduction of the nil-rate band], and you will pay Inheritance Tax on it at the rate of 40{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af}.
As the assumption is that you are in your late 60s or 70s, our experts recommend that you should consider giving gifts to your nieces during your lifetime. Doing so will reduce the overall value of your entire state at the time of your death.
When making gifts with aim of reducing the IHT liability, you must ensure that there remain sufficient funds that can easily cover potential future costs during your lifetime.
However, it remains imperative to consider whether you can make gifts against the background of your overall circumstances.
If the answer is YES, gifts remain an effective and straightforward method of making your nieces benefit now and reducing the burden of Inheritance Tax on your entire state (subject to relevant conditions being met).
When it comes to making gifts with the aim of reducing the IHT liability on your estate, you should remember that you can only make gifts amounting to up to £3,000 annually without being charged any tax. Any amount exceeding the aforementioned amount will be taxed.
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You can also give additional gifts to your nieces that are exempted from Inheritance Tax after meeting all the relevant conditions. This condition includes demonstrating to the authorities-concerned that you are making these gifts from your “surplus income” while ensuring that your standard of living is not affected or reduced when making these gifts.
While making gifts for reducing the IHT liability, you must ensure to make sure that you are making them as part of routine expenditures. Doing so will establish a regular pattern. For further advice on this matter, contact US.
There’s another way through which you can reduce your IHT bill receipts and it is through Potentially Exempt Transfers or PETs.
When you make PETs, there will be no IHT provided that you have survived 7 years from the date of the gift. In the worst scenario of you failing to survive 7 years, the PETs are going to minimise the nil-rate band available at the time of your death. However, there’s partial relief if you survive 3 years from the date of the gift. The longer you manage to survive, the bigger will be the relief (on a tapered basis).
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By implementing these steps under the guidance of a certified tax adviser, your nieces will start benefiting from your estate in your lifetime and the worth of your entire state will continue to reduce on yearly basis. This will ultimately result in relatively smaller Inheritance Tax bills at the time of your death.
As the assumption is that you do not have any living spouse and you are in your late 60s or 70s, it becomes imperative that you start planning beyond solely relying on the nil-rate band and residence nil-rate band of £325,000 and £175,000 respectively.
When it comes to claiming to Residence Nil-Rate Band or RNRB simply, you should remember that RNRB is only claimed when the state is passed on to direct descendants. Distant relatives like nephews, nieces, or cousins are unable to benefit from it. In the scenario being discussed in this article, regrettably, RNRB cannot be claimed.
For estates exceeding the £2 million thresholds, RNRB tapers and it completely becomes invalid for estates with a worth of £2.7 million or above.
Many people usually believe that there’s no point in Inheritance Tax planning if they don’t have a spouse or children left behind. Well, this isn’t the case anymore.
We have helped thousands of happy clients through careful inheritance tax planning. Our experts have helped save customers hundreds of thousands of pounds in terms of Inheritance Tax bills by reducing their liabilities legally.
Our experts begin inheritance tax planning by holding a detailed and in-depth discussion with you to determine your actual financial position. Finally, they come up with the best strategy with a single aim of maximising tax reliefs through exemptions available.
So, what are you waiting for? Get in touch with us for a 15-Minute Free Call. Start planning your inheritance tax today to save hundreds of thousands of hard-earned pounds in the future.
