Importance of planning for inheritance tax
Inheritance tax is charged at 40 per cent and may be due from an estate when someone dies, unless the estate is left to a spouse or civil partner.
The nil rate band takes the first £325,000 out of IHT, and from April 6, 2017, a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.
The RNRB is being phased in. For deaths in 2017/18 it is £100,000, rising to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21 and thereafter it will rise in line with the Consumer Price Index.
There are a number of conditions that must be met in order to obtain the RNRB.
In particular, it should be noted that individuals with an estate which exceeds £2m will not qualify, which may be particularly relevant to farming businesses and property owners.
There are planning options available however, which include lifetime planning. Examples of this may include the creation of trusts and lifetime gifts, together with revising the terms of your will.
The Office of Tax Simplification has recently been asked by the Chancellor, Philip Hammond to review the inheritance tax rules with the aim to simplify the current complex system.
Mr Hammond has requested that ‘the review should focus on the technical and administrative issues within IHT, such as the process of submitting returns and paying any tax due, as well as practical issues around routine estate planning and disclosure.’
He has also requested that the OTS ‘look at how current gift rules interact with the wider IHT system, and whether the current framework causes any distortions to taxpayers’ decisions surrounding transfers, investments and other relevant transactions’.
With this in mind, HMRC are now providing an online form to help executors in England and Wales. The form can be used instead of the paper IHT205 form. The form is to be used by personal representatives of the deceased, persons applying for a grant of representation, such as probate and in circumstances where no IHT is likely to be payable.
IHT is an area where attention to timing and detail can be critical. At Whittingham Riddell we specialise in assisting our farming clients with IHT planning. Please do get in touch if you would like to discuss your position with us and planning options.
Claire Smith is an assistant manager in the farm team at Whittingham Riddell and has been working closely with farmers and owners of rural businesses on preparing accounts, tax returns and providing day-to-day advice.
