Inheritance Tax Planning

Intelligent Inheritance Tax Planning (IHT) will help you make the most of your assets, wealth and property. Our Inheritance Tax Planning experts are here to help you reduce the tax burden on your estate and maximise the inheritance you can pass on to your loved ones.

Our estate planning lawyers and tax advisors are highly regarded experts in the field of IHT law with decades of experience. We appreciate that this is a complicated and dynamic area undergoing constant change, which is why we are proactive in remaining up to date so we can offer the best tax solutions to our clients.

When dealing with tax and estate planning, you will often find yourself crossing into many other areas of the law. As a full-service law firm, we can offer a cross departmental approach, providing seamless expertise in related areas.

When dealing with IHT matters, we can also help with Wills and probate, property and trusts as well as family law, ensuring you receive a comprehensive and cohesive service, throughout.

Our Inheritance Tax Planning lawyers can help you with all aspects of estate planning and Inheritance Tax matter, including:

• Nil-rate bands (Inheritance Tax threshold)
• Trusts
• Lifetime gifts and potentially exempt transfers (PET)
• Transferring tax-free allowances to spouses and civil partners
• Charity donations

To arrange an initial consultation with our specialist Inheritance Tax Planning solicitors in Southwest Wales, please contact your local Hains & Lewis office in Carmarthen, Haverfordwest or Narberth.

How our Inheritance Tax Planning solicitors can help you

Nil-rate bands

The nil-rate band (NRB) is the maximum amount that can be left before Inheritance Tax applies. Everyone is entitled to a nil-rate tax band for inheritance calculations and there are different rules that apply under different circumstances.

Our expert inheritance solicitors can assist you in reviewing your Will to ensure you are making the best use of the relevant nil-rate band in your estate planning.

Trusts

Trusts are an excellent financial planning tool. They are a good way of keeping control over the assets you have placed in them and protecting the assets for your beneficiaries - whilst also helping save on Inheritance Tax.

Types of trust you may wish to consider include:

• Absolute trusts or bare trusts
• Discounted gift trusts
• Discretionary trusts
• Discretionary will trusts
• Interest in possession trusts
• Life interest will trust
• Mixed trust
• Loan trusts

Whatever type of trust you choose, it may be subject to Income Tax, Capital Gains Tax and Inheritance Tax which will be applied in different ways depending on the type of trust and how the beneficiaries are going to benefit.

Trust law is extremely complicated. We can provide all the professional expertise and advice you need to explore the best trust options to suit your needs.

Lifetime gifts and potentially exempt transfers (PET)

Gifting to family and friends during your lifetime benefits your loved ones right away whilst also providing a good way of reducing the value of your estate for Inheritance Tax purposes. 

Lifetime gifts are considered to be such things as cash or assets which were gifted by a deceased person during their life.

There are two kinds of lifetime gift:

Potentially exempt transfers (PET) – Regardless of value, these types of gifts will be exempt from Inheritance Tax where the deceased survives 7 years after making the gift and has not reserved a benefit or continued to enjoy the asset once it was gifted. If the deceased dies within 7 years of making their gift, the gift becomes a Chargeable Transfer and Inheritance Tax may be due.

Gifts with reservation of benefit - This is an asset that the deceased has given away but then continues to benefit from in some way. This could be income from a property, continued occupation of a property or the enjoyment of continued use of the asset, for example. Here, beneficiaries do not have full and exclusive ownership. Gifts with reservation of a benefit will normally be liable for Inheritance Tax.

Our Inheritance Tax planning solicitors can make sure you fully understand and appreciate all the considerations that need to be made with lifetime gifts so you can make the most of their tax advantages.

Transferring tax-free allowances to spouses and civil partners

Being married or in a civil partnership can have many advantages when it comes to Inheritance Tax. Usually, transfers between married couples or civil partners will not be subject to Inheritance Tax (IHT) and when a spouse or partner passes away, their whole estate can, therefore, be inherited by the other without being taxed.

The same is true in the circumstances when their nil-rate band has not been used. Any unused balance can be transferred, tax free, across to the surviving partner’s estate, effectively doubling the surviving partner’s tax-free threshold.

Marriage or civil partner tax-free transfers can be complicated. Our specialist Inheritance Tax planning specialists can provide all the necessary support and expertise to help minimise your tax liability with tax-free transfers to surviving spouses or civil partners.

Charity Donations

Charitable donations are an excellent way of making a difference and helping others whilst saving on tax. For example, any cash or asset you leave to charity will be exempt from Inheritance Tax.

Should you leave 10% or more of your estate to charity, you can benefit from a reduced rate of Inheritance Tax (from 40% to 36%), potentially saving thousands of pounds. Donating to charity can also be a way of reducing Capital Gains Tax.

Whatever your charitable aims, our Inheritance Tax solicitors at Hains & Lewis can help you take full advantage of the many tax benefits attached to donating to charity.

Your guide to Inheritance Tax Planning

How is Inheritance Tax calculated?

Inheritance Tax is calculated on the value of the estate, usually at the rate of 40% for the part of the estate that is above the £325,000 nil-rate band threshold. There is an exception where the tax is charged at 36% in cases where 10% of the net value of the estate is left to charity.

Our Inheritance Tax planning solicitors can support you with working out the Inheritance Tax liability of your estate and choosing the right estate planning options to minimise this burden.

What is the Inheritance Tax threshold?

In the tax year 2021/2022, the Inheritance Tax threshold or nil-rate band is £325,000 for individuals and £650,000 for married couples or civil partners.

There is also an additional tax-free allowance of £175,000 for your main residence.

Can you avoid Inheritance Tax on property?

Married couples or civil partners can pass their entire estate to their spouse when they die. Surviving spouses or civil partners can, therefore, inherit the entire estate, including the family home, without having to pay Inheritance Tax.

The additional tax-free allowance of £175,000 for your main residence, on top of the standard £325,000 nil-rate band (2021/22), means many properties will be exempt from Inheritance Tax.

There are also tax-efficient options for properties, such as trusts, that may be worth considering depending on your circumstances.

Can you avoid Inheritance Tax with a trust?

By putting assets into a trust, they may not form part of your estate which means they could avoid Inheritance Tax when you die. The timing of when assets are put into the trust before a person dies can be an important factor on the tax that will be liable.

If you choose to put your assets into an Interest in Possession Trust, you will be able to draw an income from them which will be subject to Income Tax but exempt from Inheritance Tax on death.

Who pays Inheritance Tax on gifts?

No Inheritance Tax will be liable on gifts given by the deceased more than 7 years before they died. However, any income or gains made from a gift may be subject to other taxes such as Capital Gains Tax, which will be owed by the beneficiary.

Speak to our Inheritance Tax Planning solicitors in Carmarthenshire and Pembrokeshire

To arrange an initial consultation with our specialist Inheritance Tax Planning solicitors in Southwest Wales, please contact your local Hains & Lewis office in Carmarthen, Haverfordwest or Narberth.