Osmai Management
Estate Planning
Wealth protection and succession are complicated, difficult and emotionally charged subjects. We take a sensible and open approach ranging from basic domestic estate planning to complex offshore solutions.
Inheritance Tax (IHT) – The Basics
IHT is payable on assets that are gifted from your estate to others. 0% IHT is paid on the first £325,000 gifted and 40% thereafter. If you were to gift 10% of your total estate to charity, 36% IHT would be paid. Transfers to a spouse are IHT-free.
Nil Rate Band
The first £325,000 on which 0% is paid is known as your Nil Rate Band. You can pass your Nil Rate Band to your spouse as well. In this way, as a couple, you can pass on £650,000 of assets IHT-free. As of April 2021, there will be a further £175,000 per person of Nil Rate Band which can be used for the purposes of passing ownership of the family home. The means that, if your family home is worth £1 million, ownership of it can be passed free of IHT.
Potentially Exempt Transfers (PETs)
PETs are gifts or “lifetime transfers” which, depending on how long the donor survives after making the gift, have the potential to be free of IHT. Such gifts become free of IHT if the donor survives a further seven years. If the donor does not survive seven years then IHT will become due but “tapering relief” will reduce it as follows:
3-4 years – 80% IHT payable
4-5 years – 60% IHT payable
5-6 years – 40% IHT Payable
6-7 years – 20% IHT payable
You can also gift £3,000 per annum free of IHT.
* Information correct up until tax year 20/21.
Trusts
Individuals can transfer the ownership of assets into a settlement, otherwise known as a trust. Trusts have three core components. For estate planning, they have the advantage that assets in trust can be outside of your estate. You can nominate a set of beneficiaries who can then control the assets after you’re gone. Because you are passing control and not ownership, IHT is not payable. UK trusts have a complex set of tax rules. Professional advice should be sought.
OSMAI Management does not give legal or tax advice. If you require such advice, you should hire a licensed and qualified solicitor or tax advisor. The above should not be considered advice capable of being acted upon.
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