10 steps to avoid being hit with 40% IHT in 2018
By International Adviser, 11 Jan 18
With inheritance tax payments hitting a record high at the end of 2017, the new year is a good time for advisers to ensure that clients are being as tax efficient as possible when passing on wealth to future generations, law firm Collyer Bristow has advised.
According to HM Revenue & Customs, IHT receipts hit £5.3bn ($7.2bn, €6bn) in the year to November 2017, up from £4.7bn for the whole of 2016, as more estates than ever fall within its scope.
Collyer Bristow says that failure to take advantage of the tax breaks available when transferring wealth from one generation to the next can see families being hit by the maximum IHT rate of 40%. This can come as a big blow – especially for individuals who are asset rich but cash poor.
However, there are a number of easy steps individuals can take in 2018 to ensure they or their families do not pay IHT unnecessarily.
Take advantage of lifetime gifts and “potentially exempt transfers”
Consider gifting cash or assets during your lifetime to reduce or potentially exempt them from IHT.
The liability on such gifts reduces by 20% each year if you survive by more than three years after making the gift, down to zero after seven years.
Make gifts to friends and family out of excess income
Individuals are allowed to make the following gifts, exempt from IHT, each year:
- £3,000 (one year’s unused allowance can be carried forward to the next, accruing a total allowance of £6,000)
- Wedding gifts worth up to £5,000 for a child; £2,500 for a grandchild; or up to £1,000 for anyone else, can also be made free of IHT.
- Multiple small gifts of up to £250 per person can be made each year, as long as they have not already benefitted from other gifts made.
- Gifts made out of excess income as part of a regular pattern of giving are exempt – with no limit to the amount which can be gifted.
Tags: IHT
