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At Sovereign Wealth Midlands, we specialise in Inheritance Tax and Estate Planning.

No longer is Inheritance Tax (IHT) just a sole concern of the wealthy. Despite many people being aware of the need to do IHT planning, few do anything to address their concerns and potential liability.

Unfortunately, without the correct advice and careful financial planning, HM Revenue & Customs could be the biggest single beneficiary of your estate when you die.

HM Revenue & Customs collected £5.2bn in IHT revenues in 2017/18 alone.

Source; gov.uk KMRC tax receipts 24 April 2018 and Gov.uk, 28 July 2017

Arrange a no-obligation IHT consultation

  • What is Inheritance Tax?

    IHT is effectively a tax on your wealth and is payable to Her Majesty’s Revenue & Customs (HMRC) on money or possessions you leave behind when you die.

    This can also apply to some gifts you make during your lifetime. Protecting yourself from inheritance tax will allow you to pass on your wealth to future generations

    IHT has now become more relevant than ever. The tax liability on even a relatively modest estate can have a dramatic effect, and on a large estate it can be even more damaging.

    It is worth noting that Inheritance Tax does not apply to everyone. An estate is only liable once the value is above the current nil-rate band (NRB) which at present is set at £325,000 per individual. So, in this instance where an estate is less than the current NRB, no IHT is liable. For married couples and registered civil partnerships, the threshold for IHT is currently £650,000 (both individual allowances combined) where the full allowance of the deceased partner has been passed to the surviving spouse. Anything in excess of this allowance is taxed at 40%.

    IHT mitigation is increasingly becoming a more significant part of good financial planning, as more and more estates fall outside of the nil-rate band and become vulnerable to tax. As average property prices continue to increase, more estate will now be valued over the IHT threshold.

    The Residence Nil-Rate Band adds an additional tax-free allowance to the existing £325,000 NRB. For the tax year 2020/21 this sits at £175,000. Following this, it will increase in line with the Consumer Prices Index (CPI). It has also been confirmed that the current NRB of £325,000 will remain frozen until the 2021/22 tax year.

    The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

What options are available to help mitigate IHT?

Your Will* – ensure it is planned and written correctly to save the maximum amount of tax.

Annual exemptions, Gifts from Excess Income, and Lifetime Gifts – transfer assets through the prudent use of these allowances.

Pensions – although broadly exempt from IHT, if passed to your survivor they will form part of their estate. St. James’s Place can offer solutions which allow your survivor to access your death benefits without them forming part of their estate.

Trusts* – legal agreements where property (money or assets) are managed by trustees for the benefit of a defined list of individuals.

Business Relief (BR) – applies to qualifying business property providing 100% IHT relief. St. James’s Place offer services which may reduce IHT liability whilst also retaining an element of control and flexibility over the capital.

Whole of Life Insurance/Assurance – a life insurance policy which pays out a capital sum on the death of the policy holder. This can then be used by beneficiaries to settle an IHT liability. It is essential that the policy is written into trust. This will ensure the amount the policy pays out is paid directly to the beneficiaries of the trust rather than into the estate, further compounding the IHT liability.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

*Will writing involves the referral to a service that is separate and distinct to those offered by St. James Place and along with Trusts are not regulated by the Financial Conduct Authority.

Working for you

How Can We Help?

  • Gifts
  • Pensions
  • Trusts
  • Reliefs
  • Later Life Planning
  • Life Assurance

Making gifts to others can be a valuable exemption from Inheritance Tax (IHT).

Gifts between married couples or civil partners are completely free of IHT – as long as they are considered a permanent UK resident.

Annual Exemption – Every year you have a £3,000 allowance for tax-free gifts. However, gifts in excess of this amount could be liable to IHT. If you do not utilise this allowance in one year, it can be carried forward to the following year, providing an allowance of up to £6,000.

Unlimited Individual Gifts – You can make gifts of up to £250 per person each tax year to an unlimited number of individuals.

Wedding Gifts – You can make gifts of up to £5,000 towards a child’s wedding. The gift has to be made before, not after the wedding, and the wedding has to take place. Gifts of £2,500 or less can be made to a grandchild or great-grandchild, or in the case of a relative or friend, £1,000 or less.

Gifts out of Excess Income – Unlimited regular gifts are permitted out of excess income. It is worth noting that should you provide gifts out of excess income, you should keep a full detailed record of any gifts made. You should clearly demonstrate that the gifts are not disadvantageously affecting your lifestyle for the benefit of tax avoidance.

It is also worth noting that lifetime gifts of capital designed to maintain a dependant is exempt under certain circumstances. Further, gifts to charities, political parties or for the public benefit, such as universities, national museums, and the National Trust are also exempt.

Frequently Asked Questions

What is a potentially exempt transfer?
A potentially exempt transfer (PET) enables individuals to make gifts of unlimited value which may become exempt from IHT if the individual making the gift survives for seven years following the gift. If you die within this seven-year period, it will be considered a chargeable consideration and may form part of your estate for IHT. During the seven-year window the gift is therefore known as a potentially exempt transfer. If you make a gift in excess of the nil rate band, the IHT liability will reduce to 0% through what is known as taper relief over the seven years.

What is Taper Relief?
IHT is charged at 40% on gifts given within three years of death. However, gifts made three to seven years before death are taxed on a sliding scale. This is known as taper relief. Taper relief reduces the tax payable, not the value of the gift transferred.

Can I leave a gift to someone for a specific purpose?
Yes, this is typically achieved through the use of a trust*. You can specify when the money is used and for what purpose. A good example of this is gifting money within a trust for the benefit of a child’s future education.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

*Trusts are not regulated by the Financial Conduct Authority.

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Pension planning can play a significant role when coming to reducing your Inheritance Tax (IHT) liability. Further, if you have the ability to leave your pension fund untouched while using other assets to fund your retirement, you could pass your pension fund on tax-free while gradually reducing the size of your taxable estate. However, this only applies when the member’s death before age 75.

Although pension death benefits are traditionally exempt from IHT (assuming the scheme is written under discretionary trust), if they are passed to your survivor they could form part of their estate. As a Principal Partner practice at St. James’s Place we offer solutions which will allow your survivor access to your death benefits without them forming part of their own estate.

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There are multiple reasons for using a trust when making a gift. For example, they are often used when making a gift to a minor or someone you may believe is not sufficiently responsible. In this case you may wish to make the gift, however, retain some control over it, whether until the beneficiary reaches a certain age or until you decide that the recipient is sufficiently mature. This can be achieved using the correct form of trust and ensuring its suitability of purpose.

Trusts can also be used to:

  • Provide provisions of monies for successive generations.
  • Preserve monies which may otherwise be diluted or pass outside of the family due to divorce or bankruptcy of a beneficiary.
  • Mitigate Inheritance Tax (IHT).
  • Trusts can form a fundamental part of estate planning and cannot be overlooked. They can help in the process of reducing or mitigating IHT but are also commonly used in helping provide for any liability. The IHT treatment of trusts at inception, during the term of the trust period, and upon distribution of any trust funds, depends on the type of trust used.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

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There are a number of reliefs that can apply on death and/or during an individual’s lifetime that can help mitigate inheritance tax (IHT).

To be entitled to a specific type of relief, there are certain conditions that apply to each relief that need to be satisfied. Therefore, it is important to be aware of what these are and not take any action that may jeopardise such reliefs. Seeking advice from an IHT and Estate Planning specialist is always recommended. Contact us today for more information.

Business Relief:

Business Relief, formerly known as Business Property Relief, was first introduced in the 1976 Finance Act. The aim was to ensure that a family-owned business could survive as a trading entity after the death of the owner, without having to be sold or broken up to pay an IHT liability.

Business Relief reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid. Any ownership of a business, or share of a business, is included in the estate for inheritance tax purposes.

You can get Business Relief of either 50% or 100% on some of an estate’s business assets, which can be passed on either while the owner is still alive or as part of a will.

Agricultural Relief:
You can pass on some agricultural property free of Inheritance tax, either during your lifetime or as part of your will. Agricultural property that qualifies for agricultural relief is land or pasture that is used to grow crops or to rear animals intensively.

There are certain conditions that must be met in order to qualify for agricultural relief which will broadly speaking, provide a rate of relief of either 50% or 100% depending on the circumstances. This is why it is essential to seek specialist IHT and Estate Planning advice.

Woodlands Relief:
This relief only applies to the growing of timber and is only available on the value of the timber. It enables the family to defer an IHT payment until the timber has been sold. Further, the land on which the timber is grown on may be eligible for agricultural relief.

Additional Reliefs:

Tapering Relief:
If a donor dies within seven years of making a transfer that is not exempt from IHT, Tapering Relief may be available. If there’s inheritance tax to pay, it’s charged at 40% on gifts given in the 3 years before you die. Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Quick Succession Relief:
Quick succession relief reduces the burden of IHT where an estate taxable on death includes assets received within the previous five years under an earlier transfer on which tax was (or becomes) payable. Relief is provided by reducing the tax payable on the death by a proportion of the tax payable on the earlier transfer. The proportion tapers at 20% intervals from 100% if the previous transfer took place within 12 months of the death to 20% if it took place between 4 and 5 years before the death.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

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Most people don’t like to think about what may happen in the future, but if you plan ahead, you will have peace of mind that you’ve prepared for the future no matter what may happen.

As medical and health care advances, we are living longer than ever. It is not uncommon to require a residential care home in later life, and the cost of this can turn out to be hugely expensive at around £44,512 per year if nursing is required. **

We specialise in planning for our client’s future and utilise the St. James’s Place Later Life Planning scheme to assist with successful Inheritance Tax (IHT) planning through monetary gifts to family and loved ones and securing a pre-defined level of income to help cover you from the future costs of long-term care. No matter your age, or your circumstances, we will do all we can to help.

Trying to plan for later life can be complicated, however we are on hand to answer any questions that you may need answering.

Key Benefits

  • Keep control of your money
  • Make monetary gifts during your lifetime to loved ones
  • Create a bespoke Inheritance Tax plan
  • Take advantage of gifts and trusts*
  • Arranging a pre-set income for life to help protect against the future costs of care, if required
  • If you would like to receive a complimentary ‘Later Life Planning’ Guide and find out more about how we could help you and those closest to you, please contact us today.
  • The value of an investment may fall as well as rise. You may get back less than you invested. If the “income” taken exceeds the growth on the Plan, the capital will be eroded.

*Trusts are not regulated by the Financial Conduct Authority

**Source: Laing & Buisson Report 2017/18

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Sometimes inheritance tax (IHT) solutions can be limited and it is not possible to reduce the size of your estate, and therefore any potential IHT liability. When this is the case, life assurance plans can be used as a solution to provide a tax-free cash sum on death to help meet IHT liability.

Placing into Trust
Although life assurance plans provide cash on death, they can also compound the problem should they form part of your, or your survivor’s estate therefore increasing the IHT liability due. It is there of paramount importance that the life assurance plan is set up correctly and written into trust.

This then means that the sum paid on death goes directly into a trust intended for a specific beneficiary or group of beneficiaries such as your children, rather than it being paid out as part of your estate.

When you write a life assurance policy into trust, the pay-outs do not go to your estate. Therefore, the value will not count towards the IHT threshold and so the entire sum will go to who it is intended to go to.

If life assurance plans have already been established and not placed into trust, these could be either assigned as a gift or placed into trust, therefore removing them from your estate.

Fast and Direct
An additional benefit to placing life assurance policies into trust is that the pay-out is often much quicker than it would otherwise be as the beneficiaries will not have to wait until probate is granted before gaining access to the funds.

Probate is a legal process that involves an executor being granted permission to deal with the assets of the deceased. This can often be a long and lengthy process, particularly if the deceased did not have a will in place to deal with their affairs.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

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Are you worried about Inheritance Tax?

Contact Sovereign Wealth in Market Harborough today on 01858 791182 for a no-obligation initial consultation and get an inheritance plan tailor-made for you.

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