Category Archives: Inheritance Tax News

Inheritance Tax Investigations on the Rise

The 2021/22 financial year saw a hefty £326 million being recouped in IHT, which was a considerable jump from £254 million in the preceding year, The Scotsman reports. If we follow this trajectory, it’s safe to say that we’ll likely see another rise in the coming months when the 2022/23 data rolls in.

Furthermore, since 2019, over 13,000 people in the UK have found themselves under the watchful eye of Her Majesty’s Revenue and Customs (HMRC) concerning IHT investigations. This number is over and above the usual IHT bills.

Why the Increased Scrutiny?

So, why are more and more people finding themselves ensnared in the IHT web? Here’s a closer look:

  1. Rising Property Values: Even though the UK Government has pegged the IHT threshold at £325,000 in recent tax years, property values have surged. Thus, many who believed they were exempt from IHT due to not having ‘enough’ wealth are getting a rude awakening. And despite some areas reporting a drop in house prices, estate agents in certain localities confirm that prices remain stable.
  2. Mistakes in Reporting: Families often make errors when reporting the value of estates. Some of these blunders include underestimating property values, leaving out bank accounts or investments, misunderstanding IHT exemptions, or not maintaining records as per HMRC’s standards.
  3. HMRC’s Proactiveness: HMRC is becoming increasingly vigilant, questioning the figures and records submitted by families. This means any unpaid IHT is retrieved from the inheritors. Importantly, if the beneficiaries can’t pay the additional IHT due, the executors themselves are held responsible.

How Can You Safeguard Yourself?

To navigate the IHT maze, here are two straightforward steps:

  1. Seek Professional Advice: Lawyers, coupled with financial advisers, can guide you on how to make the most of various IHT exemptions. For instance, you can gift items or cash worth up to £3,000 each tax year without it being taxed.
  2. Follow HMRC Processes: Getting legal advice can assist executors in adhering to HMRC’s procedures when dividing the estate. This ensures that everything is above board and reduces the risk of unwanted scrutiny.

Remember, IHT isn’t just about assets inherited after someone’s death. It can also apply if the deceased had gifted something and passed away within seven years of doing so.

In Conclusion

Navigating Inheritance Tax can be tricky, but it’s essential to get it right. Errors can be costly and might impact the financial legacy we aim to leave our loved ones. Stay informed, seek advice, and ensure you’re not caught off guard.

Securing Your Business Legacy: A Guide to Estate Planning for Entrepreneurs

Estate planning is often overlooked by business owners who are primarily focused on growing their ventures. However, as one progresses in age, planning for what happens to the business after you’re gone becomes crucial.

For business owners, having a valid, up-to-date will ensures that the business assets pass on to the intended beneficiaries. In an excellent article in Investors Chronicle, Christine Ross of Handelsbanken Wealth & Asset Management emphasizes the need for this will to be frequently reviewed, particularly if there are changes in family or business situations.

Contingency Planning for Unexpected Demise

Imagine a scenario where you die unexpectedly. What happens to your business? If your company has multiple directors, operations might continue. But, as Lauren Peters from Valkyrie Financial Advice suggests, you need to decide the specifics, like whether a family member would replace you or if an outsider would be sought. For those with limited companies, clarity in the Articles of Association and the Shareholder Agreement is paramount.

Engaging the Next Generation

Before making any decisions, Kate Aitchison from RSM suggests consulting family members about their interest in taking over the business. If they decline, you should plan for their smooth exit.

For those who are sole traders, you embody your business. Hence, upon your death, there isn’t a distinct entity to inherit. Ross recommends getting insurance against potential claims from creditors.

Shareholder Protection

What if a business owner passes away, leaving shares to beneficiaries uninterested in the business? Such beneficiaries might opt to sell their shares, which could be problematic for existing shareholders. Peters mentions the challenge of finding funds to buy back these shares. This is where shareholder protection insurance steps in, providing necessary funds without burdening the business.

However, regular review (at least every five years) of this insurance is essential to ensure it corresponds with the business’s share value.

Maximizing Tax Efficiency

Business owners can seek Business Relief (BR), which can offer inheritance tax (IHT) exemptions. Conditions apply, such as the business being unlisted and its main activity not being investment-driven. When eligible, 100% relief on unquoted shares is possible. Furthermore, assets like land or machinery may also get relief, but at a 50% rate.

However, if too much of a business’s value, turnover, or time leans more towards investment than trading, it could lose its BR eligibility.

When transferring business assets as gifts, it’s crucial to consider potential capital gains tax (CGT) implications. Aitchison points out the importance of understanding tax consequences when gifting shares within a family business.

For Beneficiaries: Steps to Take

The death of a business owner necessitates immediate administrative actions:

  1. Reporting the Death: Executors or personal representatives should register the death, obtain death certificates, and, if available, secure copies of the deceased’s will.
  2. Valuing the Estate: It’s their responsibility to determine the estate’s value, pay required taxes, and distribute assets based on the deceased’s will (or the rules of intestacy if no will exists).
  3. Informing Authorities: Promptly notify HMRC and other relevant departments using services like “Tell Us Once”.
  4. Business Continuation: If the deceased ran a limited company with other directors, tax payments and returns remain critical. For sole traders, the business typically ends with them, but financial and tax obligations must be finalized.
  5. Directorship Challenges: In cases where the sole director dies, appointing a new director is often necessary. Companies House must be informed of this change within two weeks.
  6. Banking and Funds: Ensure limited company bank accounts are cleared before dissolution at Companies House. Otherwise, funds revert to the Crown, making retrieval challenging.

To protect the business, Ross suggests granting first-buy options for shares to co-shareholders who aren’t family. Peters highlights that, for tax benefits, these agreements should remain non-binding.

Winding Up the Company

If beneficiaries opt to close the business, they can apply to strike it off the Companies House Register. However, if insolvency is an issue, professional advice is strongly recommended.


Estate planning is an indispensable aspect of entrepreneurship. It’s a testament to a business owner’s commitment not just to the enterprise’s success but to its longevity and the well-being of loved ones left behind.

Mum’s £150k Gift and the Tax Tangle: A Guide to Understanding Inheritance Tax

Understanding inheritance tax (IHT) can be tricky, especially during emotionally draining times like the loss of a loved one. The Telegraph’s expert looked into a reader’s situation that involves a sizable gift from a deceased mother, a house sale, charitable donations, and some confusion over taper relief.

The £150,000 Gift Saga

The reader starts with a rather distressing situation. After her father’s passing, her mother sold a house she had inherited and divided the £300,000 proceeds between her and her sister, giving each £150,000.

The crux of the issue? The reader believes that a tax relief called “taper relief” should reduce the taxable amount of this gift by 80%. HMRC, the UK’s tax collection authority, disagrees.

Decoding Taper Relief

Taper relief for inheritance tax can be a tad complex. But here’s a simplified breakdown:

  • Every UK resident gets an IHT-free allowance, known as the “nil-rate band”. Since April 6, 2009, this amount has been frozen at £325,000 and will remain so until at least April 5, 2028.
  • When a person gives a gift, this allowance decreases by the value of that gift for seven years. If the reader’s mum had lived another year, the entire gift would’ve been free from inheritance tax. But, unfortunately, she passed away six years after giving the gift.
  • Taper relief starts to kick in three years after giving a gift. It starts at 20% and rises 20% each subsequent year. By year seven, the gift isn’t liable for inheritance tax at all.
  • But—and here’s the tricky part—taper relief only applies to gifts that exceed the £325,000 limit.

So, for the reader’s situation, since the £300,000 gift was entirely within the £325,000 allowance, taper relief doesn’t come into play. Had the gift been larger, say £425,000, the relief would’ve applied to the amount over the £325,000 threshold.

The Charitable Donations Confusion

Now, onto the second quandary. The reader’s mum made charitable donations during her life. While charitable gifts to UK registered charities are exempt from IHT, they don’t affect the £325,000 allowance. So, these donations neither increase the estate’s taxable value nor decrease the inheritance tax owed after death.

The confusion might arise from a reduced IHT rate of 36% (compared to the usual 40%) available when at least 10% of the estate left upon death goes to qualifying charities. However, gifts given during one’s lifetime don’t qualify for this reduction.

Wrapping It Up

In summary, HMRC’s stance on both counts appears to be accurate:

  1. The £300,000 gift from the reader’s mum doesn’t qualify for taper relief as it was within the £325,000 nil-rate band.
  2. The charitable donations made during her mum’s lifetime can’t be used to reduce the inheritance tax owed.

Tax-Free Gifts: A Hidden Gem in Inheritance Tax Rules

In the maze of tax laws, there is a barely known yet incredibly generous rule that could benefit families across the UK. With this secret weapon, you can gift unlimited money without the worry of inheritance tax, provided it comes from the right place. The Daily Mail published a summary.

The Magic of Gifting Surplus Income

Imagine being able to give your children or grandchildren a financial boost without any tax strings attached. Well, there’s a special exemption in the tax laws known as “gifting out of surplus income” that allows just that. The key here is that any money you gift must come from your income (like your salary, rental income, or dividends), not your capital or savings.

Unlike the typical seven-year rule, which can claw back inheritance tax on gifts if you pass away within seven years of giving, these gifts are immediately exempt from inheritance tax.

How Does It Work?

Amount and Recipients: There’s no cap on how much you can give, and you can choose anyone as a beneficiary. However, it’s vital these gifts are regular. They could be annual birthday gifts, contributions to education fees, or help towards a home purchase, explains Julia Rosenbloom, a tax expert.

Source of Gifts: The trick is the money must be considered income. This could be your salary, rental income, or even dividends from investments. If you’re keen on using investment income, Faye Church from Investec suggests restructuring your portfolio for higher yields.

Rules to Follow: It’s not just about giving away money; there are rules. The gifts must come from your income, not your savings, and they shouldn’t affect your standard of living. Also, there must be a regular pattern to these gifts.

Setting Up Your Tax-Free Gifting

To get started, all you need is a letter indicating your intention to make these gifts regularly. There’s no formal paperwork required, but keeping detailed records can make life easier for your executors when the time comes.

Interestingly, even if you weren’t aware of this rule, your executors might still apply it retrospectively if they notice regular gifts in your financial history that qualify.

Who Benefits Most?

This exemption isn’t for everyone. If your estate is under the £325,000 inheritance tax threshold (£650,000 for couples), or if you’re leaving a family home worth up to £1 million to your direct descendants, your estate might already be tax-free.

It’s best suited for those with high incomes and lower expenses, as your gifts need to come from surplus income. Also, remember that pensions have their own tax-friendly rules, so speak to a tax expert if you’re considering gifting from pension income.

Avoiding Common Pitfalls

While this exemption is a boon, it’s not without its pitfalls. You can’t just live off your capital while gifting all your income away; the taxman will be onto you. Additionally, not all investment incomes qualify. For instance, insurance payouts or lump-sum cash payments are generally off the table.

In Summary

The “gifting out of surplus income” exemption is a golden but underused key to mitigating inheritance tax. It requires a regular pattern of gifting, must come from your income, and should not affect your usual standard of living. With some planning and discipline, you can support your loved ones generously and tax-efficiently. But as always, consider consulting a financial advisor to navigate the complexities and make the most of your hard-earned money!

Skyrocketing IHT Receipts: The Stats Revealed

Between April and September 2023, the HMRC recorded IHT receipts of an astounding £3.9 billion. This figure towers over the previous year’s same period by a substantial £400 million, marking an 11% escalation. Such a trajectory in the first half alone sends a clear signal: the Treasury is on track for an unprecedented year of IHT revenues, MoneyMarketing reports.

Stephen Lowe, the Group Communications Director at Just Group, highlighted the intensity of this fiscal change. He pointed out the significant climb in the tax collection compared to the past year and its strong potential to outdo the Office for Budget Responsibility’s (OBR) annual projections.

OBR’s Forecasts Likely Falling Short

The OBR’s recent predictions estimated the IHT would generate £7.2 billion in the current financial year. However, these figures seem conservative now, with expectations rising as high as £8.4 billion by 2027/28. According to Lowe, the ongoing threshold freeze until 2028, paired with a 30% leap in property prices over the past six years, is the major propellant pushing more estates into the IHT net.

Public Awareness: A Cause for Concern

Despite the increasing IHT pressure, Just Group’s research unveils a disturbing lack of awareness among retirees. A staggering 59% of over-55s are unaware of the current IHT threshold. Simultaneously, half of the participants confessed to a blurred understanding of the tax’s rules, potentially setting the stage for unforeseen financial shocks.

The growing IHT figures serve as an alarm, Lowe advises, for individuals to meticulously evaluate their estate’s complete value. This includes keeping property valuations current. Engaging professional, regulated financial advice is a critical step for individuals to accurately determine their estate’s worth, potential tax obligations, and strategize accordingly.

Inheritance Tax: A Political Puzzle

The swelling IHT revenues present a peculiar challenge for the government. Rosie Hooper, a chartered financial planner at Quilter, notes the tax’s sensitive nature, capable of dividing voters. Rumours are afoot about Labour contemplating the elimination of Business and Agricultural Property relief, a move potentially fraught with broader economic impacts.

Furthermore, the Chancellor’s decision to extend the IHT threshold freeze until April 2028 hints at a strategy to quietly increase revenue. However, this comes with its own set of issues. Soaring property prices, especially in southern England, have increased the number of households subject to IHT. Despite a slowdown in the housing market growth, significant price drops are yet to be observed, keeping the average UK home value around £291,000 as of August 2023.

Hooper emphasizes that this strategy of fiscal drag isn’t limited to IHT but extends to freezes in income tax thresholds, capital gains tax allowances, and dividend allowances, all aimed at boosting government revenues.

However, the overarching consensus is clear: IHT requires a well-thought-out reform. The onus is on the political parties to undertake this without triggering unintended repercussions. As families across the UK continue to grapple with these potential financial burdens, the need for clarity, fairness, and comprehensive planning in tax policy has never been more critical.

Higher House Price Areas Where Inheritance Tax is More Likely

Inheritance tax in the UK kicks in when you inherit property, money, or possessions from someone who has passed away. There’s a tax-free threshold known as the ‘nil rate band,’ but if the estate’s value exceeds this, a 40% tax is charged on the amount over the threshold. However, this isn’t a blanket rule — who you are in relation to the deceased and the estate’s value play crucial roles.

The threshold is £500,000 if the deceased leaves the property to their children or grandchildren, and a full exemption applies if the estate goes to the surviving spouse, civil partner, a charity, or a community amateur sports club. For others, the standard threshold is £325,000, beyond which the 40% tax applies.

The Impact on Homeowners: RIFT’s Revealing Analysis

Research by RIFT, a finance expert group, shows how these tax rules could affect homeowners across the UK. They found 35 local authorities where the average house price is high enough to push estates over the £500,000 inheritance tax threshold — meaning a significant tax bill for the heirs, even if they are direct descendants.

On the brighter side, in 216 local authorities, the average house price is under the £325,000 mark, sparing any inheritor from this tax. However, this only considers property. Other assets, including money and possessions, can add up and potentially push the estate’s total value over the threshold.

The study highlights a middle ground, too: 144 areas have average house prices between £325,000 and £500,000. Here, leaving property to children or grandchildren is the way to avoid inheritance tax, provided there aren’t substantial other assets to consider.

Where Inheritance Tax Hits the Hardest

For some locales, the news is grim. Thirty-five local authorities have average house prices exceeding £500,000, leading to unavoidable inheritance tax bills. Kensington and Chelsea top this list with an eye-watering average house price of £1.34 million, translating to an average inheritance tax of £337,868 on property alone!

Following closely are London’s pricier boroughs, while Elmbridge leads outside the capital with a potential average tax bill of £71,312. Several other areas, including St Albans, Three Rivers, and Guildford, also face hefty potential inheritance taxes due to high property values.

Expert Commentary: An Unfair Burden?

Bradley Post, Managing Director of RIFT, sympathizes with those frustrated by these taxes, calling inheritance tax a “hot topic.” It stings, he notes, to pay substantial stamp duty upon buying a property, only to be hit again with inheritance tax based on its value.

Thankfully, he adds, most homeowners won’t face this tax if they’re leaving property to exempted parties like spouses or direct descendants. However, he cautions that the rules apply to the entire estate — not just property — making the family home’s value a critical consideration in inheritance planning.

Looking Ahead: Navigating Your Legacy

For many, these findings underscore the importance of estate planning. Knowing how inheritance tax might affect your property and total estate can guide decisions about bequests, potentially sparing your heirs a hefty tax bill. It’s always wise to consult with financial advisors or legal experts to understand how these rules might specifically apply to your situation, ensuring your legacy is as you intend it.

Inheritance Tax: What Happens with Jointly-Owned Property?

Understanding inheritance tax is daunting for most of us, especially when jointly-owned properties are involved. The rules seem complex and knowing what you’ll owe, or what your loved ones will be faced with after you’re gone, can be unclear. Inews break down the essentials of how inheritance tax applies to jointly-owned properties and who’s responsible for footing the bill.

Understanding Joint Ownership

First off, let’s clarify what joint ownership actually means. There are two main types:

Joint Tenants

If you’re “joint tenants,” that means both (or all) owners’ names are on the deed, and you equally own the whole property. Regardless of who contributed what financially, each tenant has an identical stake in the property.

Tenants in Common

Conversely, “tenants in common” each own a specific portion of the property, which might be half, a third, a quarter, etc., depending on the number of owners and what’s been agreed upon. This arrangement is common when co-owners want to protect their respective shares, particularly if they’ve contributed different amounts to the property’s purchase.

Joint Ownership’s Impact on Inheritance Tax

The Scenario for Joint Tenants

When one owner dies in a joint tenancy, the surviving owner(s) automatically inherit the deceased’s share of the property. If the deceased’s total estate (including their share of the property) exceeds the tax-free threshold (known as the “nil rate band”), there may be inheritance tax due. However, if the co-owners were married or in a civil partnership, the surviving spouse or civil partner won’t have to pay inheritance tax on their inheritance.

The Complexities for Tenants in Common

For tenants in common, the deceased’s share doesn’t automatically go to the surviving co-owners. Instead, they can leave their share to anyone specified in their will. This is where things often get tricky.

William Stevens, head of financial planning at Killik & Co, emphasizes that the relationship between beneficiaries (those inheriting the will) and the co-owners is crucial, as this is frequently where disagreements arise.

If the deceased’s estate—including their share of the property—exceeds the nil rate band and other applicable exemptions, inheritance tax may be due. The executor of the deceased’s will, usually a family member or a legal professional, is responsible for arranging this payment from the estate.

Paying Inheritance Tax When Cash is Short

What happens if most of the estate’s value is tied up in property, leaving not enough cash to pay the inheritance tax bill? Selling the property is an option, but it’s complicated if the surviving co-owners don’t want to sell.

“It’s not usually possible to force a sale without a legal process, and even that might not succeed unless you have a significantly larger interest than the counterparty,” explains Stevens.

Thankfully, HMRC understands these challenges. Rules allow for the value of a deceased’s share in a jointly-owned property to be discounted, potentially reducing the inheritance tax owed. “The discount is normally between 10-15% but must be agreed upon with HMRC, who might require more information,” Stevens adds.

Moreover, you can opt to spread an inheritance tax payment over ten years, though you should be prepared to pay at least 10% upfront to secure probate. In situations where there’s not enough cash, taking out a loan is another solution, but remember, it’ll still need to be repaid eventually.

Planning Ahead is Key

Dealing with inheritance tax on jointly-owned properties can be complex, and the stakes are high. Proper understanding and effective estate planning are crucial to ensure your loved ones aren’t overburdened when the time comes. Consider seeking professional advice to navigate these murky waters, making the process manageable and less daunting for everyone involved.

Inheritance Tax: Gifting Property to Your Child

You’ve spent a lifetime building up assets, particularly your family home, and understandably, you want to protect as much of that wealth as possible for your children. One common query that arises in this context revolves around the idea of reducing inheritance tax (IHT) by gifting part of your house to your child. But is that even possible? What are the rules? And importantly, are there any pitfalls you should be wary of? Let’s decode these complexities, step by step. In today’s Telegraph, a reader asks their expert for guidance – here’s a summary.

IHT and Property Gifts: The Basic Groundwork

HM Revenue & Customs (HMRC) has rules in place that allow parents to gift part of their home to a child who resides with them and will continue to do so. This could be a viable route for parents hoping to decrease the value of their estate for IHT purposes. However, things can get a bit complicated when trying to figure out the maximum proportion that you could potentially gift under this rule.

The family home, usually a significant asset, is a popular area for creative IHT planning. Yet, I caution you to be wary of schemes that seemingly offer a too-good-to-be-true solution; these could potentially invite scrutiny from HMRC. That’s why it’s crucial to understand the fundamentals of inheritance tax regulation concerning potentially exempt transfers (PETs) and gifts with a reservation of benefit (GWR).

A lifetime gift is a PET unless it is immediately exempt for some reason. These transfers usually become fully exempt after a seven-year period. The scenario of a parent gifting a house, or share of a house, to a child would classify as a PET.

Gifting but Retaining Benefit: Possible Pitfalls

GWR rules stipulate that a person cannot make a PET if they continue to benefit from the asset that’s gifted. This means that, generally speaking, you cannot gift all or part of a house to your child if you plan on continuing to reside in there. However, there’s a way to convince HMRC that GWR rules do not apply, and that’s by the parent paying a full market rent to the child. But given the current scenario of high rents, this might require substantial payments from the parent. Moreover, the child would have to declare this income and pay due taxes. This arrangement might be viable for some families, but for most, it’s a problematic approach.

Navigating the Exceptions: A Potential Solution

The regulations have an exception for families where an adult child is living with their parents. The Finance Act 1986 Section 102B provides this provision, known as an “old Hansard Exemption”. This term originates from a debate in Parliament, although it was never formally enacted into legislation.

Under this exception, a parent can gift a share of the house to a child, and then the house is owned jointly as “tenants in common”. Each party has distinct and defined ownership shares. The child and parents share the house as a communal household.

Understanding the Tenants in Common Arrangement

HMRC seems to prefer it when the parental share remains at least 25% of the total. It’s worth noting that whenever money is spent on the house, it has to be done in proportion to these shares.

This gifting from a parent to a child, creating tenants in common, is deemed a PET. Hence, the seven-year rule applies. The gift needs to provide the child with the right to occupy the whole house without restrictions to specific areas.

The parent gifting the property must retain an interest that allows them to reside in the entire property. In essence, this is a genuine house-sharing setup.

In order to convince HMRC of its legitimacy, the upkeep costs of the house (like insurance and utilities) need to be shared equally between all occupants. Future repair and maintenance obligations also need to be met according to the respective shares owned by the parents and the child.

Take note; this arrangement could be less convincing if the child has limited financial means to meet such expenditures, which include both everyday costs and future repairs. The child must also reside in the house, but not necessarily full-time.

Not Just Good Practice, but Essential Evidence

Despite sounding formal, it’s a good idea to have a written agreement outlining who will pay what in this kind of multi-generational living scheme. This serves as strong evidence for HMRC about the arrangement that was intended from the beginning, and how it has evolved.

Furthermore, these shared household arrangements must continue until the parent who made the gift passes away, or else any IHT mitigation will be lost.

If the arrangement does last until the parent’s death, an extra bonus is that HMRC agrees that up to a 10% discount for joint ownership can be applied when valuing a share of a house.

It’s a complex area that demands careful thought and clear understanding. Please ensure you seek professional advice tailored to your particular circumstances before embarking on any IHT measures, as each family’s situation is unique.

Charitable Bequests and Inheritance Tax

In the UK and European Economic Area, donations made to registered charities during your lifetime or specified in your will are exempt from IHT. Thus, when IHT on your estate is evaluated upon your demise, the money or assets you choose to leave for charities are excluded from the overall worth of your estate. Investors Chronicle has a useful guide.

Gifting to charity can help lower the overall value of your estate, ensuring that the remaining inheritance falls below the taxable threshold, thereby avoiding hefty IHT. For example, if you bequeath a portion of your wealth to charities, the net worth of your estate could potentially fall below the £1 million inheritance tax threshold, and no IHT would be due.

The Potential of Reduced IHT Through Charitable Donations

The often confusing terminology of tax laws can be challenging. A term to get familiar with is the “nil-rate band”, also known as the Inheritance Tax threshold, which is set at £325,000 along with the Residence Nil-Rate Band (RNRB), a further allowance of up to £175,000 available under certain circumstances.

The standard IHT rate is 40%, charged on the net taxable value of your estate, after individual exemptions and the nil-rate band are accounted for. However, this daunting 40% rate can actually be lowered to 36% if an individual leaves a minimum of 10% of the net value of their estate to charity. Such a provision was introduced to motivate more individuals to bequeath money to charities through their wills.

Remember, qualifying for this reduced 36% rate needs meticulous planning and professional advice on drafting your will. The amount left to charity must exceed 10% of the “baseline amount”—the estate’s value calculated after deducting liabilities and exemptions, but before accounting for the charitable donation and the RNRB if applicable.

The Promise of Consistency and the Fear of Change

Under current conditions, individuals are entitled to a nil-rate band (up to £325,000) and a RNRB (up to £175,000). However, these generous allowances come with caveats. For instance, the RNRB is available if the estate includes the individual’s main residence inherited by a direct descendant, like a child or grandchild. Any unused allowances from a spouse’s previous demise can also be rolled over, making it feasible for estates worth up to £1 million to be exempt from IHT.

However, being familiar with IHT regulations is not just about leveraging current allowances. As new governments take office or existing ones change priorities, tax legislation can face shakeups. For instance, the current government has stated that nil-rate bands will remain constant until the 2027-28 tax year. Despite this promise, rising house prices are pulling more individuals into the IHT net, with growing IHT receipts as proof.

With the next general election due soon, the potential for change increases. However, predicting future amendments in legislation is nearly impossible. Your best bet is to align with the legislation as it currently stands while keeping an eye on governmental shifts.

Navigating Change and Safeguarding Your Estate

You might wonder what happens if there are changes in the IHT rules after your demise. Even then, mechanisms exist to ensure your estate’s IHT exposure remains minimal. For example, you could leverage your annual gift exemption of £3,000.

However, these financial decisions should ideally be made after thorough discussions with a tax advisor. If you’re apprehensive about your possible IHT exposure, seeking professional advice will help you review your estate in detail and plan for different scenarios

Self-Invested Personal Pensions: What Happens After You Die

A Self-Invested Personal Pension (Sipp) is a pension scheme that gives you more control over your retirement savings. It’s a retirement savings account where you get to choose your investments – a much broader range than typical private pension schemes offer. It also comes with tax advantages; these benefits are a key reason why many people opt for Sipps.

One key appeal of the Sipp is that it can be bequeathed to your chosen beneficiaries when you die. So, even if you don’t live long enough to fully enjoy your retirement savings, you can rest assured that your spouse, children, or any other loved ones, can get to benefit from the funds you’ve diligently saved over your lifetime. An article in Inews looks at how that works.

Transferring your Sipp: Naming a Beneficiary

Transferring the Sipp after your death requires naming a beneficiary, which is typically done during the setup of your account. Companies that offer Sipp products provide an option to nominate one or more beneficiaries. Most individuals usually select their children or spouse.

If you can’t remember nominating a beneficiary when you initially established the account, it’s crucial to reach out to your Sipp provider for confirmation. If you leave no specified beneficiary, the provider will be left with the duty of deciding who gets the funds after your demise. This may not adhere to your originally intended plans.

Inheritance Tax and Sipps

Inheritance tax is typically a huge concern when passing on wealth. However, in the case of Sipps, they’re generally not seen as part of your estate and are therefore not subject to any inheritance tax. Still, there’s a caveat; your heirs need to consider other tax liabilities such as income tax.

Ishaan Sethi, a product lead for wealth at smart money app Plum comments, “Most often, beneficiaries can receive the money free from inheritance tax”. He further explains that if you pass away before you turn 75, beneficiaries can make withdrawals without tax implications, provided the amount doesn’t exceed the lifetime allowance for pensions which is currently set at £1,073,100.

On the contrary, if you happen to die when you are 75 or older, the withdrawals will be treated as part of the beneficiary’s income, and will be taxed on that basis.

Future Pension Rule Changes and Inheritance

While the current rules seem straightforward, it’s worth noting that from next year the lifetime allowance will be substituted with the lump sum and death benefit allowance pegged at the same rate.

In keeping up with the ongoing pension rules review, the government is contemplating changing these rules too. They propose that beneficiaries of those who die before turning 75 will no longer be exempted from income tax. Though no final decision has been reached, change is always plausible in tax policies.

Given these possible changes, Sethi recommends holders of Sipps to seek “a degree of flexibility” when choosing their retirement savings product. It’s also crucial to consider other factors like the fees charged, and the simplicity of making deposits and withdrawals.

By planning carefully and understanding the rules around Sipps, you can ensure that you maximise your retirement savings and make the process easier for your beneficiaries when the time comes.