Showing posts with label IHT. Show all posts
Showing posts with label IHT. Show all posts

Wednesday, October 21, 2015

Five tips to mitigate Inheritance Tax in the UK

Inheritance Tax (IHT) in the UK can be extremely punitive. For spouses or civil partners there is no tax to pay but for anyone else, the IHT rate is 40% for sums above the nil rate band (NRB) of £325,000 per individual.

It does not have to be. There are a number of ways one can significantly reduce this tax with a little bit of estate planning. Here are 5 tips you need to keep in mind when it comes to IHT:

1. Gifts from disposable income

This is actually an HMRC concession that most people are unaware of. It relates to the ability to give away an unlimited amount provided it qualifies as "normal expenditure out of income" and it is arguably one of the most useful IHT exemptions. It is also very flexible, because you don't have to gift the same amount every year or make the gifts to the same person. Many people use the exemption to pass on money on a regular basis to children or grandchildren. It is important to remember however that the exemption is not given automatically and has to be claimed retrospectively by the executors of your estate. For the gifts to qualify, you must be able to show that the payments are made out of surplus income - either earned income or investment income - and that they do not reduce your standard of living and in particular you cannot pass on income and then use your capital to supplement living costs.

2. Gifts of capital survived 7 years

There is a way to give your whole estate away and pay no tax at all. As long as you survive the gift by 7 years or more. This type of transfer is known as a "Potentially Exempt Transfer" or a PET. It is important to bear in mind that when making a large gift it has to be in excess of the nil band rate (NBR) to benefit from any potential reduction in the potential tax due as a result of the taper relief. In addition it is also important to be aware that any gift made essentially uses up the nil rate band and could push the remaining estate into a full rate of tax with no relief at all for the subsequent 7 years.

Keep in mind that if you give your estate away, you don't control it anymore. Something that many people are reluctant to do. But there is another option. Please read on....

Friday, September 13, 2013

Annual Tax on Enveloped Dwellings due soon

Announced in the March 2012 Budget, the Annual Tax on Enveloped Dwellings (ATED) return -- called at the time the Annual Residential Property Tax (ARPT) -- is due by October 1st 2013. The corresponding tax liability has to be paid by October 31st 2013.

If all of the following criteria are met, an ATED return is required by 1 October 2013:
  • a company (other than a company acting as trustee of a settlement or as nominee), a partnership with corporate partners or a collective investment scheme which holds UK residential property, and
  • at least one single-dwelling interest was worth more than £2m on 1 April 2012 or at the date of acquisition if later, and
  • the single-dwelling interest was still owned on 1 April 2013

Thursday, December 20, 2012

Owning UK property in an offshore company

Until recently UK resident and non-domiciled individuals investing in UK property would have been advised to use an offshore company to hold the title. This not only allowed the owner to avoid the 40% UK inheritance Tax (IHT) but also offered the potential for future buyers to avoid stamp duty (SDLT) by acquiring the company shares rather than property title to the UK property. Perhaps not surprisingly the UK government decided to legislate in this year's Budget to prevent this loss of revenue from residential properties (commercial properties are unaffected).

The draft legislation published on 11th December 2012 outlines the new taxes and charges which will have to be paid by Non Natural Persons (NNP) owning property in the UK. There is already a new punitive rate of Stamp Duty (SDLT) where a NNP acquires a UK residential property for more than f2m (15% instead of 7%). And from April 2013, NNPs owning properties valued in excess of £2m will also be subject to an annual charge (called the Annual Residential Property Tax or ARPT). The charge will be £15,000 for properties valued between £2m and £5m, £35,000 for properties valued between £5m and £20m and £140,000 thereafter.