Andrew McQueen
Changes to inheritance tax are anticipated to be in the upcoming Labour Budget on October 30. Should you consider transferring your wealth now?
Here’s what you need to know:
- Check Your Estate’s Value: Start by finding out the value of your estate and how much IHT you might owe based on current rules. Each person currently has a tax-free allowance of £325,000, plus up to an extra £175,000 if you leave your home or its equivalent value to direct descendants. This extra allowance is called the Residence Nil Rate Band (RNRB).
- Spousal Transfers: You can transfer assets to your spouse or civil partner without worrying about inheritance tax. If the first spouse didn’t use up their allowances, they can be added to the surviving spouse’s allowances, potentially doubling the tax-free amount to £1 million. But, if your estate is worth over £2 million, the RNRB decreases. For estates over £2.7 million, the RNRB becomes zero, leaving only the basic £650,000 tax-free allowance. Inheritance tax is charged at 40% on any value above these allowances.
- Business and Farming Assets: Currently, there’s no inheritance tax on business or farming assets transferred during your lifetime or on death, which helps avoid having to sell assets to pay tax. However, this could change under the new government.
- Gifts and Transfers: If you give away assets and live for at least 7 years after making the gift, there’s no inheritance tax due. These gifts are known as Potentially Exempt Transfers (PETs). However, if you die within 7 years of the gift, inheritance tax may be charged. Remember, if you give away your home but continue to live in it, it might not work for inheritance tax unless you meet certain conditions, like paying rent.
- Capital Gains Tax (CGT): Gifts might also trigger CGT, but in some cases, you can defer this tax with holdover relief, especially for business assets or transfers into trust.
If you’re concerned about inheritance tax and want to consider options before the Budget, please reach out to us.