WEALTH MANAGEMENT Inheritance tax rules are convoluted, but it's worth knowing that if you are married or in a civil partnership, and your estate is worth less than £325,000, any unused threshold can be added to your partner’s threshold at your time of death. No IHT is payable if you pass on your home to your spouse or civil partner. However, if the home is left to another person in your will, it will count towards the value of the estate. If you give away your home to your children or grandchildren, your threshold will increase to £425,000. (This is known as the Residence NRB and basically adds £100,000 to the NRB, if you pass to your direct descendants). In relation to offerings, a gift made seven years or more before death are known as a ‘potentially exempt transfers’ (PETs) and will not be taxable. Gifts that are not exempt from IHT will be charged 40 per cent tax if given in the three years before you die. Gifts made three to seven years before your death will be taxed on a sliding scale. However, this only applies to larger items as smaller than the NRB given, within the seven years prior to death, will simply use up all or part of the NRB allowance. There’s no IHT to pay on gifts between spouses or civil partners, if they reside in the UK permanently. You can also currently give away £3,000 worth of items (each tax year) as an annual exemption, and unused annual exemptions can be carried forward for one year. Any assets either gifted to or left in a will to a registered charity, will also avoid IHT on death. Nonetheless, other gifts are likely to be counted towards the value of your estate, and the beneficiaries of gifts will be charged IHT if you give away more than £325,000 in the seven years before your death. It’s worth noting that a loss in value when a possession is transferred is counted as a gift. For example, if you sold your property to your child at a 50 per cent discount to market value, the difference between the sale price and market value would be classed as a gift. To answer your question on whether IHT is avoidable, the simple answer is yes, if you take professional, qualified financial advice in advance. For most people, this would be during their 50s or 60s rather than leaving it until much later in life. THE NEXT STEP IHT solutions are very much tailored to the needs of the individual, there are some simple steps you can take to significantly reduce the impact: • Make a gift to a partner • Gift family members or friends • Transfer assets into a trust • Leave a legacy to charity • Take out life insurance When gifting away assets, there are some ways to continue to see the benefits of that asset including a regular retirement income. For this, we recommend you seek professional advice. Chris Ferguson is the CEO at Credence International 20 EQUITY
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