As the government grapples with the challenges of intergenerational fairness, the end of the tax year provides opportunities to help ensure that more wealth stays in the hands of your family and not the taxman.
Annual receipts from Inheritance Tax (IHT) topped £5.2 billion for the first time in the year to October 2017¹; the average IHT bill is now around £175,000². That’s money which could instead help with the financial challenges faced by younger family members through expert planning and by taking advantage of tax-saving opportunities that would be lost after the end of the tax year.
Today’s children are growing up in a very different and challenging financial world. But with foresight and planning, parents, grandparents and the wider family can control how much of their estate passes to their family free of Inheritance Tax. Gifting can not only reduce or eliminate an IHT bill, but provide younger generations with a crucial head start, especially when the money is invested through Junior ISAs and pensions.
You can make gifts worth up to £3,000 in each tax year (£6,000 if you use the previous year’s allowance as well) without incurring any IHT. You can pass on larger amounts of money free of IHT, so long as you live for seven years after making the gift. You may also want to take account of the ‘normal expenditure out of income’ rule – if you make gifts out of your income and, in doing so, don’t reduce your standard of living, they are exempt from IHT, and there is no upper limit.
If you think your estate is likely to be hit by IHT, and you can afford to give some money away now, then you should move quickly. With the end of the 2017/18 tax year looming, you only have a short window of opportunity to make this year’s £3,000 allowance count – and to carry forward last year’s, if you haven’t used it already. Using the carry forward provisions, a couple could potentially remove £12,000 from their joint estate immediately.
¹ HMRC, November 2017
² Prudential, May 2017
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
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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