INHERITANCE TAX

 Inheritance Tax is usually paid on an estate when somebody dies. It is also sometimes payable on trusts or gifts made during someone's lifetime. Most estates don't have to pay Inheritance Tax because they are valued at less than the threshold (£325,000 in 2014 to 15). The tax is payable at 40% on the amount over this threshold or 36% if the estate qualifies for a reduced rate as a result of a charitable donation. Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies - to as much as £650,000 in 2014 to 15. Their executors or personal representatives must transfer the first spouse or civil partner's unused Inheritance Tax threshold or 'nil rate band' to the second spouse or civil partner when they die. Inheritance Tax is payable by different people in different circumstances. Typically, the executor or personal representative pays it using funds from the deceased's estate. The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax. 

It's never an easy subject to contemplate. But without taking adequate steps you could be liable to leave behind a 40% Inheritance Tax bill when you die. What is more, your loved ones could be forced to pay it before they can inherit what you want them to have.

If, when you pass away, the value of your estate is above £325,000 if you are single or divorced, or £650,000 if you are married or in a civil partnership (if you are widowed, it is up to £650,000 depending on how much allowance was used when your partner passed away), everything you own above this threshold may be liable for a 40% IHT bill. These Inheritance Tax thresholds might seem like a lot, but when you add up the value of your estate – which includes your property, car, jewellery, savings and investments – you might be surprised by how much it's worth. IHT planning is about how to mitigate the IHT liability on your estate and we believe this should be a team effort involving you and your professional adviser. To enable long-term planning to be set in place, it is important to carefully consider your planning options before making decisions about your financial planning and the distribution of your estate.

What you do is your decision, but the earlier you seek our advice the better. Don’t forget, successful IHT planning has to be a team effort and the “The Rock–FMC” will be a reliable partner through the entire planning process.

 Most gifts made during your lifetime will be entirely exempt from IHT if you live for seven years after making the gift. Giving gifts during your lifetime can be a simple and effective way of mitigating any IHT liability. So with advance planning you can make the most of these ‘tax free gifts’. At The Rock-FMC, we can advise you which gifts will qualify and any conditions that must be satisfied. 

• Transfers of assets between spouses and civil partners are exempt from IHT, but other lifetime gifts may be more tax-efficient.
• Lifetime gifts are potentially exempt from IHT, and there is no limit on such transfers, so this is an excellent way of transferring assets that you do not need to keep in your estate. It may be advisable to cover substantial gifts by insurance against death within seven years.
• Trusts let you transfer assets out of your estate for IHT purposes, but enable trustees to exercise some degree of control over the capital or income (and you can be a trustee). There may be an IHT charge, but this would be at 20%, and then only if the transfer is over £325,000.
• Life assurance policies (unless designed to cover IHT liabilities) should be assigned during your lifetime so that the proceeds do not form part of your estate on death. The most common assignees are spouses, family members, and trusts.