Rachel Reeves’ budget brought the expected significant changes to Inheritance Tax (IHT) rules, causing some kerfuffle with taxpayers, particularly those with substantial assets.
But rather than rail against the political fates, it’s important to understand these changes – and implementing effective tax planning strategies can help minimise the potential tax burden on your estate.
First of all, what happened?:
- Freezing of Nil-Rate Bands: The Budget extended the freeze on the nil-rate band and residence nil-rate band until 2030. This means that the threshold for IHT remains unchanged, reducing its effectiveness over time due to inflation.
- Increased Tax Burden: As a result of the frozen thresholds, more estates will fall within the scope of IHT, leading to a higher tax burden for many families.
- Reduced Reliefs: Certain reliefs, such as Agricultural Property Relief and Business Property Relief, have been tightened, making it more difficult to qualify for these exemptions.
Given those key changes, what can you do about it?
- Utilise Gift Tax Thresholds:
- Annual Exemption: You can gift up to a certain amount each tax year without incurring IHT.
- Lifetime Exemption: A larger amount can be gifted over a lifetime, but this reduces your overall nil-rate band.
- Consider Charitable Giving:
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- Charitable Donations: Gifts to registered charities can reduce your taxable estate.
- Charitable Trusts: Setting up a charitable trust can provide tax benefits and support charitable causes.
- Explore Trusts:
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- Discretionary Trusts: These trusts can be used to transfer assets to beneficiaries while retaining control over their distribution.
- Family Investment Companies (FICs): FICs can offer tax advantages for business owners and investors.
- Review Will and Estate Planning:
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- Regular Review: Ensure your will is up-to-date and reflects your current wishes.
- Appoint Executors: Choose reliable executors to manage your estate efficiently.
- Consider Probate Fees: Factor in the potential costs of probate when planning your estate.
But most of all, talk to us… we can help create a targeted plan. Good planning and proactive measures can make a huge difference the the tax liability you leave. So come and chat and ensure a smoother transition for your beneficiaries.
