Top tips on minimising tax liabilities whilst maintaining family wealth

Couple cycling

Couple cycling - Credit: Archant

Protecting your family wealth is vitally important. With careful planning steps can be taken to ensure that you minimise your tax liabilities and maintain the family wealth for future generations.

Jo White © 2013 Paul Fletcher

Jo White © 2013 Paul Fletcher - Credit: Archant

Inheritance Tax

Inheritance Tax (IHT) is a tax on what a person gives away. It usually arises when someone dies but this is not necessarily the case. Generally, any gift is potentially chargeable to Inheritance Tax. Death is simply the ‘final gift’.

Generally no tax is payable on the first £325,000 of value, the Inheritance Tax nil rate band. Any surplus value over £325,000 is then taxed at 40%. In certain circumstances, gifts during your lifetime can trigger an IHT liability of 20%, again this is on any excess value over £325,000 at the time of the gift.

From 2012 a reduced rate of IHT can apply where 10% or more of a deceased’s net estate is left to charity bringing the tax rate down to 36%.

Lifetime Giving

There are three types of lifetime gifts for IHT purposes. A transfer to a company or trust which is immediately chargeable to IHT; exempt gifts which always can be ignored and any other transfers known as potentially exempt transfers (PETs) where Inheritance Tax is only payable if the donor dies within 7 years of making a gift.

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A lot of lifetime planning focuses around making gifts which are PETs, reducing the donor’s estate once the 7 year time limit has passed. Generally speaking PET’s are a better form of planning than chargeable transfers to a company or a trust. However, in some circumstances it is still possible to use these type of structures without incurring an Inheritance Tax liability during your lifetime.

Exempt gifts can include a gift of £3,000 per annum to another individual; gifts to individuals not exceeding £250 in total per tax year per recipient; gifts for family maintenance; gifts to registered charities and if planned correctly any gift out of excess income.

Gifts between husbands and wives are generally exempt if both are UK domiciled. Where the surviving spouse dies after 9 October 2007 it is possible for them to utilise any unused nil rate band from the first death. The surviving spouse can benefit from an additional 100% nil rate band if the first spouse or civil partner leaves their entire estate to exempt beneficiaries.

Trusts can provide an effective means of transferring assets out of an estate while still allowing the donor to retain some control. Providing the donor does not obtain any benefit or enjoyment from the trust then any future increase in value of the property is removed from their estate.

Lifetime IHT planning without a supporting Will can be ineffective. In a lot of circumstances people do not appreciate the importance of a carefully planned Will.

Whilst IHT planning and getting your Will right is important the need to ensure your financial security during your lifetime cannot be ignored. It is also important that you consider any interaction of other taxes when making lifetime gifts as the IHT benefit could be outweighed by the cost of other taxes being triggered.

Make sure you take full advantage of the tax saving opportunities available to you – call us today for a tax planning review on 01403 253 282 or email