The main objective of Estate Planning is to pass your wealth on to your chosen beneficiaries as tax efficiently as possible without jeopardising your financial security. Estate Planning involves an element of financial planning, lifetime gifts – either outright or into a trust – and a tax-efficient will. We understand that each client is unique and requires a personal plan, and for this reason we offer a bespoke service to each and every one of our clients.
There are some simple rules to Estate Planning:
- Plan early
- Keep it as simple as possible
- Do not give too much away. Any tax mitigation should not be at the expense of the financial security of you and your family
- Keep tax planning flexible as tax laws change frequently and occasionally it may be necessary to unravel any tax planning scheme.
The areas you need to consider when Estate Planning are:
Inheritance Tax (IHT)
The current rate of IHT is 0% on the first £325,000 of a deceased’s estate and 40% of any amount over that sum.
Lifetime or death transfers between spouses are exempt from IHT. A husband and wife have transferable nil rate bands and are therefore currently able to leave a total of £650,000 without IHT being charged to their estate. Gifts to charities are usually completely exempt from IHT.
You can lessen any IHT obligation by making some transfers of assets during your lifetime which are exempt from IHT. These include:
- Transfers of £3,000 per annum
- Gifts to charity
- Gifts in consideration of marriage up to £5,000
- Small gifts of £250
Normal expenditure out of income, if claimed, is exempt provided the payments are of surplus income not required to maintain your “normal expenditure” and normal standard of living. This is a useful exemption and can be used for example to fund premiums of life insurance policies written in trust which in turn can be used to fund any IHT payments.
If you have a business or agricultural property you may be able to take advantage of business property and agricultural property relief if the necessary criteria are fulfilled.
Capital Gains Tax (CGT)
CGT is currently set at 18% or 28% on chargeable gains depending upon whether you are a basic or higher rate tax payer. There is no CGT on an estate upon death but lifetime transfers or other disposals of assets may be caught if the gain exceeds the CGT threshold (currently £10,100) for individuals. There is no CGT on inter-spouse transfers or on the sale of a principal private residence if owned throughout the chargeable period.
Tax Planning Tips
- If you are a member of an employer’s personal pension plan or ‘death in service’ benefit plan then it’s important to have completed a nomination form and filed this with the employers of the scheme’s trustees.
- Life Insurance policies, and some private pension plans, should be written in trust to avoid payments upon death being included in the deceased’s taxable estate for IHT.
- Make use of payroll giving and gift aid, whereby gifts may be made to charity without the deduction of income tax.