Trusts are a relatively easy and very tax efficient way to set aside assets for future beneficiaries outside of the inheritance tax net. We can advise on the most suitable type of trust for your purposes, set up trusts, and provide a full range of accounting services for trusts. We can also advise you on the preparation of your will. Where appropriate, we can act as trustees or executors for you.
Some basic planning points are :
Legislation allows married couples/civil partners to claim the unused IHT nil rate band on the first death. This can double the nil rate band (currently £325,000) on second death, where all assets pass to the surviving spouse at the first death. For many people this will mean no IHT, as the total estate will be below £650,000.
However, there are still many estates above this threshold, particularly given the rise in property values in recent years. It is therefore sensible to look at ways to mitigate the potential liabilities for IHT perhaps by lifetime giving or investment in assets that qualify for certain exemptions, e.g. business property relief.
During lifetime, gifts of £3,000 per year can be made entirely free of IHT and if the previous year’s exemption has not been used it can be brought forward making £6,000. Gifts by a parent to a child in contemplation of marriage of £5,000 are also exempt, as may be gifts out of income. Generally gifts above these limits will only become exempt if the donor lives for 7 years after the date of gift. (Potentially Exempt Transfers).
Investing in shares listed on the alternative investment market (AIM), may qualify for 100% relief from IHT where the shares are held for a minimum of 2 years. Traditionally companies listed on AIM are smaller entities and can therefore be higher risk, but such investments offer a useful shelter from IHT.
Gifts into Trust are always chargeable to IHT, but are very effective if the transfer uses the Nil Rate Band or Business Property Relief.
Large gifts, particularly to younger beneficiaries can sometimes be problematic since control over the asset is lost. However, a measure of control can be maintained by use of discretionary trusts. Here the trustees have power over the income and capital of the assets and can decide to distribute, or accumulate income within the trust. The trust also has its own nil rate band and is subject to IHT in its own right and therefore when combined with the doubling of the band for married couples, can be very effective in mitigating potential liabilities.
There are special rules for Income Tax on Trust income and there is a charge at reduced rates to IHT every ten years for Discretionary Trusts.
There are other relief’s of IHT.
A. Call Tim O’Keefe or Roger Harding for a free consultation to see how we can help on 0117 923 7788 Please note that phones are answered between 8.30am & 5.15pm Monday to Friday