When it comes to the matter of Inheritance Tax in Colchester, there is a clear need to guard more of your wealth against taxation today for the benefit of their family and loved ones to make their lives significantly easier.

You do not have to be wealthy for your estate to be liable for Inheritance Tax in Colchester, and it is not something that is paid only on death: it may also have to be paid on gifts made during someone’s lifetime. Generally, your estate will be liable if it is valued over the current Inheritance Tax threshold (the ‘Nil-Rate Band’) on your death which is fixed until 2020/21 at £325,000.

Your estate includes any gifts you may have made within seven years of your death. Anything under the
Inheritance Tax threshold is not taxed (the Nil Rate Band), and everything above it is taxed, currently at 40%. However, where a person dies and leaves at least 10% of their net estate to a qualifying charity, a reduced rate of 36% Inheritance Tax can be payable. In addition, any unused proportion of the aforementioned ‘Nil-Rate Band’ belonging to the first spouse or registered civil partner to die can be passed to the surviving spouse or registered civil partner to limit Inheritance Tax in Colchester (or anywhere else for that matter!).

Additional Nil-Rate Band

As of the 6th of April 2017, the Government will be introducing an Additional Residential Nil Rate Band that will be available when you pass your house to your children, grandchildren or great-grandchildren. It will also be available if you downsize or cease to own a home, as long as the replacement is passed to your children, grandchildren or great-grandchildren. However, it will start to reduce if your net estate is more than £2 million and will reduce by £1 for ever £2 it is over. This will start at £100,000 and increase by £25,000 each tax year until it reaches £175,000 in 2020/21, when it will increase each tax year by the Consumer Price Index. Moreover, as with the traditional Nil-Rate Band, the Additional Residential Nil-Rate Band is transferable between spouses and registered civil partnerships if unused on first death.

At the same time, however, moving ownership of assets to your spouse or registered civil partner may help reduce the Inheritance Tax liability on your estate (as would making donations to charity). Nevertheless, do not forget that this can cause an increased Inheritance Tax liability when they die.

You should also be aware that if you can afford to make gifts during your lifetime, this will also reduce the value of your estate and your Inheritance Tax liability as a consequence. Moreover, you can also make a gift of up to £3,000 a year without any Inheritance Tax liability and, if you do not use this whole allowance, it can be carried forward to the next tax year. Finally, you can also give gifts of up to £250 a year to any number of people with no Inheritance Tax liability.

Gifts with Inheritance Tax Implications

There are also two types of gift which currently have tax implications.

(a) Chargeable Lifetime Transfers

The first is Chargeable Lifetime Transfers with the most common examples being lifetime gifts into Discretionary Trusts. By way of illustration, a transfer will be charged (together with any chargeable transfers made in the previous seven years) if it exceeds the Inheritance Tax Nil-Rate Band (currently £325,000). Therefore, tax is paid at 20% on any excess over the Nil-Rate Band.

(b) Potentially Exempt Transfers

The other type of gift to be aware of in this regard is Potentially Exempt Transfers. This effectively means that gifts between individuals or into a bare trust arrangement are examples of Potentially Exempt Transfers. These gifts are free from Inheritance Tax, provided you survive more than seven years beyond the date of the gift. The other area to be aware of is if you are making a gift but try to reserve any of the benefit for yourself.

How could a Life Insurance Policy help to deal with the problem of Inheritance Tax liability?

A life insurance policy written under an appropriate trust could be used towards paying any Inheritance Tax liability. Under normal circumstances, the payout from a life insurance policy will form part of your legal estate and could thus be subject to Inheritance Tax in Colchester. By writing a life insurance policy in an appropriate trust, the proceeds from the policy can be paid directly to the beneficiaries rather than to your legal estate and will not be taken into account when Inheritance Tax is calculated. It also means payment to your beneficiaries will probably be quicker, since the money will not go through probate.

For more information with regard to Inheritance Tax in Colchester as a means of guarding your wealth against taxation, contact our dedicated Essex-based staff at Andrew Douglas Wills and Legal Services now via www.andrewdouglaswills.co.uk or on:

01376 348 997

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