Inheritance Tax Planning
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When you are arranging the funding of long term care you may also wish to make sure that the arrangements you make are efficient for inheritance tax (IHT) purposes.
Warning
IHT is a highly complex tax. There are a number of ways of managing it, some of which are regarded as contentious and likely to be challenged by HM Revenue and Customs. Before doing anything you must take professional advice. Whilst every effort has been made to make sure that this page is accurate, it cannot possibly cover all circumstances and we do not accept any liablity for actions taken as a result of the information that follows.
Inheritance Tax schemes usually involve a compromise with your funds which may restrict access to your money or mean that you invest in assets that you would not normally consider. You should think about how important it is to you to reduce your tax liability and weigh this up against the solutions on offer.
Who Pays Inheritance Tax?
The estate of anyone domiciled in the UK can be liable for IHT. IHT is payable at two rates; 0% on the nil rate band, which is currently the first £325,000 (April 2009 onwards) and 40% on anything above that level.
If you have made substantial gifts within the last seven years your nil rate band may be reduced by the value of those gifts.
If IHT is due on your estate it will be payable by your executors before they are allowed to distribute the estate to your beneficiaries.
Can I Avoid IHT?
There are some simple things you can do straight away.
You are allowed to give away £3,000 each tax year. If you have not used this allowance in the previous year you can gift £6,000 this year. You cannot go back more than one year.
You can make gifts of up to £250 a person each tax year.
You can make gifts for family events such as weddings, births etc. Contact us for details.
Gifts to your spouse or civil partner are free of IHT (known as the spousal exemption).
Any gifts not covered by these exemptions are regarded as a Potentially Exempt Transfer (PET) and will be added back into your estate if you die during the following seven years.
You can gift money into trusts but there is complex tax treatment involved and specialist advice is essential.
You can buy shares that qualify for business property relief. Again this is something that needs specialist advice.
Can I use my Spouses Nil Rate Band
If your spouse or civil partner died before you and did not give away their entire nil rate band to people other than you on their death, or during the preceeding seven years, you may be able to claim some or all of their nil rate band in addition to yours. This can be the case even if they died some time ago.
Why Plan Now?
In many ways moving into care represents an ideal opportunity for planning your inheritance tax situation.
For many people, their property is their main asset. It is very difficult to remove your propertys value from your estate whilst continuing to live there.
However, if you sell that property there may be ways that the money can be used tax efficiently.
Inheritance Tax and Care Plans
If your estate is likely to be liable to IHT and you buy a care plan, some or all of the premium for the care plan may be money that would otherwise have been taxed at 40%. This can reduce the effective cost of the care plan to the estate by up to 40%.
Inheritance Tax Advice
The carefeesadvice.com care fees planning service is an independent financial advice service that will look at ways of managing any IHT liability you may have as part of the overall advice package offered.
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