Even very experienced paraplanners can trip over obstacles lurking in the shadows of IHT.
So we invited Aegon’s tax and trusts manager, Elaine Cruickshank, to join host, Richard Allum, for an online Assembly to help you dodge the IHT perils.
Over the course of one lunch-hour, Elaine:
- untangles the transferable nil rate band and residence nil rate band, including the detail that trips people up around second marriages and downsizing provisions
- gets into the finer points of gifting exemptions, PETs and CLTs, beyond the seven-year headline
- explains how the inclusion of pensions in estates affects the taper threshold, and what that means for clients close to the £2 million mark
- works through charitable giving and the 36% rate, including the added complications once pension funds are in the mix
- brings it all together with planning opportunities you can take straight back to your desk
What can you expect to take away?
Watch or listen now and you’ll have a sharper grasp of the IHT detail that’s easy to get wrong. Plus the confidence to spot these issues in your own client cases.
Watch or listen now
Missed it? Then follow the links below to download Elaine’s slides, watch the replay or catch up with the podcast now.
The outstanding questions
There were so many questions on this Assembly that we ran out of time, so Elaine has provided us with the answers to the outstanding questions, as well as provide a clarification on the final question of the Assembly.
Can the small gifts exemption and the annual £3,000 exemption be given to the same recipient?
If a gift in excess of the £250 small gifts exemption is made, then as this gift is more than the small gifts exemption, the full gift would be allocated against the annual exemption (assuming that this was available).
Why is it called Inheritance Tax? Shouldn’t it be called Estate Tax, as it is (normally) the estate that pays?
“Inheritance Tax” is a better reflection of what the tax is intended to cover — rather than simply being a tax on an estate at death, there could also be IHT applying to lifetime transfers.
Is it best to space significant gifts at least 7 years apart then?
Each gift has its own 7-year clock, but whenever a gift is being made you have to consider the cumulative impact of any gifts made in the previous 7 years. If the donor dies within 7 years of a gift, earlier gifts use up the nil-rate band first before later gifts are considered. Making very large gifts close together can therefore increase the IHT exposure of later gifts, if death occurs within 7 years. Taper relief may reduce the IHT on gifts made more than 3 years before death, but it does not reduce the value of the gift itself for nil-rate band purposes.
Does tax-free income from a beneficiary’s pension (where the spouse dies under age 75), either through an annuity or under FAD, count towards regular income when considering gifting out of surplus income?
This is a grey area and will probably require a tax case to provide clarification. As this money is completely exempt from income tax, HMRC could view the regular withdrawals of this nature as capital rather than income.
Is there a length of time for the ‘main residence’ qualification to be lost?
For the Residence Nil Rate Band, there is no specific minimum or maximum period between the property ceasing to be the deceased’s main residence and their death. The key point is that the property must have been a qualifying residential interest, meaning a property that the deceased occupied as a residence at some point during their ownership. For the downsizing addition, they have to downsize or dispose of the property on or after 8 July 2015, but there is no stipulated timeframe between the date of downsizing/disposal and death.
What if they still own the property but have also moved into a care home?
A property can qualify even if the individual was living in a care home at death, provided the property had been their main residence at some point and they leave the property to their direct descendants. The amount of residence nil rate band available will generally be the lower of the available RNRB and the value of the qualifying residential interest passing to direct descendants, and it may also be reduced by the taper reduction if the estate exceeds £2 million.
If they own a house worth less than the RNRB, should they upsize to make the most of it?
If they upsize and buy a bigger house, the value of the estate would generally remain unchanged — they now have a larger property and less cash. However, if they live in the bigger property as their main residence and leave this to their direct descendants in their will, then they could in theory qualify for the full residence nil rate band if the value of the house was equal to or higher than the residence nil rate band and the £2,000,000 tapering threshold was not breached. However, tax mitigation isn’t the only factor to consider here — there would be the costs of moving house, larger council tax and utility bills etc, which could be more significant than any IHT saving achieved.
Can RNRB apply to an IIP trust, where some people have moved their home into a solicitor’s trust and continued to live in it?
It sounds as though this type of arrangement would potentially be a gift with reservation of benefit, with the value of the property remaining in their IHT estates. Whether or not the RNRB would apply in this scenario would depend on the provisions of the trust. Are the direct descendants the beneficiaries of the trust, and do the trust provisions meet the conditions of ‘directly inheriting’ the property?
