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How to save Inheritance Tax – Part 5
This is the final blog in my series about “How to Save Inheritance Tax”. So far we have touched on making use of allowances, surviving gifts by seven years, making gifts out of income and staying fit and healthy until after April 2020 to benefit in full, if possible, from the Residence Nil-Rate Band Allowance.
In this final blog the last ways in which I wanted to talk about how to save IHT is the making use of exemptions. The four principle exemptions that I wish to explore are:-
1. The Spouse/Civil Partner exemption
Assets passing between husband and wife, or registered civil partners or vice versa, will in the majority of circumstances be completely free of Inheritance Tax, no matter what the value of the estate is. Getting married to save IHT may not be particularly romantic but it might be very tax efficient!
2. Charity exemption
Monies passing to UK registered charities will also be exempt from any Inheritance Tax. Furthermore, in April 2012 the government introduced a provision for estates that if at least 10% of the chargeable estate is passing to charity, then the rate of tax on the whole estate will reduce from 40% to 36%.
Whilst this 10% reduction in the rate of tax may not appear to be favourable, there are certain circumstances in which the numbers can lead to an improved IHT position, and may mean that when you are drafting your Will, it makes sense to slightly increase the charity legacies that you were already going to include.
3. Business Property Relief
Some assets will also qualify for 100% business property relief, provided certain conditions are met. Broadly speaking, these needs to be an interest in a trading business, which will have been held for at least two years. The rationale behind this exemption is to enable family businesses to continue trading without them having to be sold to pay an Inheritance Tax liability.
However, in recent years this has become a popular way in which investments might be structured, for example, investments on the Alternative Investment Market, which can qualify for the relief after the requisite period of ownership.
4. Agricultural Property Relief
Similar to Business Property Relief, agricultural property relief can apply with exemption being granted at a rate of either 50% or 100%, depending upon the circumstances and the nature of the agricultural property. This relief has led to a number of investors acquiring farmland for the purposes of mitigating their Inheritance Tax liability.
Whilst it may not be appropriate to acquire assets that will qualify for business property relief or agricultural property relief, it is important to review the structure and terms of your Will, if you do own such assets.
For specific advice on Inheritance Tax matters, please contact Richard Horwood, Head of the Private Client team.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances. Longmores Solicitors LLP are not regulated by the Financial Conduct Authority and are not authorized to provide any form of financial advice.