What will your legacy look like?

It may not be pleasant to contemplate your death or what happens afterwards, but the careful planning of your financial and tax affairs means that your loved ones are free to carry out your wishes and, while they may not be fully protected from the burden of Inheritance Tax, its impact can often be significantly reduced with the right planning, as early as possible.

Passing on your assets efficiently

Without good financial arrangements your family could find themselves having to pay substantial inheritance tax in the event of your premature death. Passing on assets tax efficiently to the next generation is a key objective for those who have spent a lifetime building wealth. NextGen Intergenerational Wealth Management Service is here to help you.

Are any financial assets exempt from Inheritance Tax?

The rate of tax on death is 40% and on financial transfers while you’re alive it’s 20% where applicable. However, the first £325,000 is exempt from tax. This is known as the Nil Rate Band which has been frozen at £325,000 since 2009 and will continue until 5 April 2030. An additional Nil Rate band has been introduced for death occurring on or after 6 April 2017 where an interest in a qualifying residence passes to direct descendants. The amount of this relief, phased in over 4 years, is set at £175,000. For many married couples and registered civil partnerships, each spouse or partner enjoys the principal nil rate band and can benefit potentially from the additional residence nil rate meaning that overall tax relief could double.

Will giving during my lifetime reduce the tax liability?

HM Revenue & Customs also allows you to make a number of small gifts each year during your lifetime that are exempt from Inheritance Tax. Every individual has a separate allowance which is doubled if both spouses or both registered civil partners use their allowance.

Can I make larger gifts exempt from tax?

You may also make larger gifts known as Potentially Exempt Transfers (PETs) providing these are made not less than 7 years before your death. Any other gifts you make during your lifetime that do not qualify as PETs, and known as Chargeable Lifetime Transfers (CLTs), will be liable to Inheritance Tax. One example is a gift made into a discretionary trust.

Is anyone or anything exempt from Inheritance Tax?

Members of the armed forces killed in action or whose death is hastened by injuries sustained on active duty are exempt from Inheritance Tax and farmers may enjoy up to 100% tax relief when making gifts of agricultural land or farm buildings.

Will life insurance help pay Inheritance Tax?

If you decide that you don’t want to gift your assets while you’re alive you can take out life cover which, on

death, can pay out an amount equal to your Inheritance Tax liability. Equally, taking out a life insurance policy, written under an appropriate trust, could be used towards paying any eventual Inheritance Tax liability. Your E&G adviser will help you decide what to do.

Which financial transfers are exempt from Inheritance Tax?

Annual And Lifetime Allowances

1. Annual exemption - Up to £3000 each year as either a single gift or a number of gifts (if you don’t use the full allowance in one year you can carry over the remainder to the next)
2. Small gift exemption – up to £250 to any number of individuals per tax year, provided no other exemption is used for the same person
3. Wedding or civil partnership gifts - Up to £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else
4. Regular gifts from surplus income - If made consistently and do not affect your standard of living, these are exempt. Proper documentation is essential

Fully Exempt Transfers

1. Gifts between spouses or civil partners - Unlimited and tax-free, provided both are UK-domiciled or long-term UK residents
2. Gifts to charities or political parties - Entirely exempt from IHT.
3. Gifts for national benefit - Includes donations to museums, universities, libraries, or the National Trust.

Regulatory statement

The Financial Conduct Authority does not regulate Tax, Trusts and Estate Planning.

Help & information

If you would like further information on how E&G Inheritance could help you, please call us on 020 8396 0486 or email us at cds@eandgfs.com.