Estate Preservation – January 2020

We spend a lifetime generating wealth and assets but not many of us  ensure that it will be passed to the next generation – our children,  grandchildren, nieces, nephews, and so on. Intergenerational wealth  transfer is the passage of wealth from one family generation to the  next.

Effective estate preservation planning could save a family a potential Inheritance Tax bill amounting to hundreds of thousands of pounds. Inheritance Tax was introduced in 1986. It replaced Capital Transfer Tax, which had been in force since 1975 as a successor to Estate Duty. Inheritance Tax planning has become more important than ever following the Government’s decision to freeze the £325,000 lifetime exemption, with inflation eroding its value every year and subjecting more families to Inheritance Tax.

The Inheritance Tax residence nil-rate band came into effect on 6 April 2017. It provides an additional nil-rate band where an individual dies after 6 April 2017, owning a residence which they leave to direct descendants. During the 2019/20 tax year, the maximum residence nil-rate band available is £150,000. This rises to £175,000 in 2020/21, after which it will be indexed in line with the Consumer Prices Index.

If appropriate, you can transfer some of your assets while you’re alive – these are known as ‘lifetime transfers’. While we are all free to do this whenever we want, it is important to be aware of the potential implications of such gifts with regard to Inheritance Tax. The two main types are ‘potentially exempt transfers’ and ‘chargeable lifetime transfers’.

If you want to be sure your wishes are met after you die, then it’s important to have a Will. A Will is the only way to make sure your money and possessions that form your estate go to the people and causes you care about. Unmarried partners, including same-sex couples who don’t have a registered civil partnership, have no right to inherit if there is no Will. One of the main reasons also for drawing up a Will is to mitigate a potential Inheritance Tax liability.

Appropriate Trusts can be used for minimising or mitigating Inheritance Tax estate taxes and can offer other benefits as part of an integrated and coordinated approach to managing wealth. A Trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Once the trust has been created, a person can use it to ‘ring-fence’ assets.

Appropriate Trusts can be used for minimising or mitigating Inheritance Tax estate taxes and can offer other benefits as part of an integrated and coordinated approach to managing wealth. A Trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Once the trust has been created, a person can use it to ‘ring-fence’ assets.

Whether you have earned your wealth, inherited it or made shrewd investments, you will want to ensure that as little of it as possible ends up in the hands of HM Revenue & Customs. With careful planning and professional financial advice, it is possible to take preventative action either to reduce or mitigate a person’s beneficiaries’ Inheritance Tax bill – or to mitigate it altogether. These are some of the main areas to consider.