AtHomeWithGloriaHunnifordOctober2016 - 150

▲ I N H E R I TA NC E TAX PLANNING NEEDS TO BE DONE AS EARLY AS POSSIBLE BILLS TO PAY HMRC collected £4.7billion through inheritance tax from the tax year 2015-2016. WHAT ABOUT INHERITANCE TAX? This is a 40% levy on your wealth when you die, and on some lifetime gifts of money and high-value items. There are certain allowances and exemptions that can reduce an inheritance tax bill, so it is a good idea to seek professional advice if you are not sure how the law applies to your circumstances. Rising house prices over the past two decades have made this levy relevant to more people than before, as the values of many homes now exceed the tax-free allowance, known as the nil rate band, which is currently £325,000 per person. However, from next April there will be some changes. 'The main residence nil rate band is a new allowance attached to the passing of the family home to direct descendants,' says Alex Crate, director of Collective Legal Solutions. 'Although some of the detail is yet to be ironed out, the allowance will be worth up to £100,000 per person initially, rising to up to £175,000 per person by April 2020.' You can give as much money as you wish to your spouse or civil partner tax-free (called 'spouse exemption'), although their estate will pay tax on it when they die if the value of their estate exceeds the available allowance. 'Also, any unused nil rate band can be passed to a spouse or registered civil partner on your death, but the allowance is not transferrable between unmarried couples,' says Alex. You can also gift to charity and some political parties without paying inheritance tax. Some gifts given during your lifetime are potentially tax-free, if you live for at least seven years afterwards (this is called a potentially exempt transfer). After your death, your personal representatives (which will be your executor if you left a will) are required to settle your inheritance tax bill. It is sometimes possible to pay in instalments, but your executors may require professional assistance to fulfil their duties correctly. Any steps to reduce future inheritance tax bills must be done well in advance, when you have full mental capacity. 'Tax planning cannot be completed by a relative, even if they have Power of Attorney,' says Alex. 'As we don't always get advance notice of an accident or illness that renders us mentally incapacitated, tax planning should be addressed at the earliest opportunity.' TAX-SAVING TIPS Leave at least 10% of your estate to charity. The inheritance tax rate that your heirs will pay on their share reduces from 40% to 36%. You can give cash or gifts worth up to £3,000 in total each tax year, and these will be exempt from inheritance tax when you die. You can carry forward any unused part to the following year, but then you must use it or lose it. Parents can give cash or gifts up to £5,000 if a child gets married, grandparents up to £2,500 and anyone else up to £1,000. 150 | NOVEMBER 2016 Give away your assets years before you die. This can be done as a gift and, provided the parents survive for seven years after giving the gift, the money automatically ends up outside their estate for inheritance tax calculations, irrespective of how much money it was. Assets can be put in trust, thereby no longer forming part of your estate. There are many different types of trust available, and they can be set up by your solicitor, usually at little or no charge. They usually involve parents investing a sum of money into a trust for their children or grandchildren. The trust has to be set up with trustees - with a suggested minimum of two - whose role is to ensure that on the death of the parents the investment is paid out according to their wishes. A life insurance policy may make it easier for relatives to pay any outstanding bills, or debts, on your death. But put the insurance payout into trust; if you don't it will make your estate bigger and your loved ones will have to pay more tax. WORDS: GEORGINA MARIC, IMAGES: GETTY IMAGES You need to ensure there are funds in place to support them, if you so wish. UNMARRIED PARTNER: The law doesn't really recognise unmarried couples, so don't expect anything to go to your partner if you are not married and you don't make a will. The reality is that it doesn't matter how many years you've been a couple, your partner will not automatically be entitled to anything. This grey area could also mean that if you have children together, your partner may not be able to stay in the family home. PETS: Animals can be costly, not just the daily upkeep but also any future veterinary care they may need, which may be something to consider. If you love animals and are a regular supporter of a particular charity now, why not think about leaving a more substantial donation to that organisation in your will? EX-PARTNER: You may want to update your will to include what happens to your assets if a former spouse remarries. Without that update, the person could be entitled to whatever you left them back in happier times - no matter how acrimonious the split. BUSINESS: If you're a sole director, it's possible that if you die without executors, nobody can authorise payments (including to staff ), so your business could fold.

Table of Contents for the Digital Edition of AtHomeWithGloriaHunnifordOctober2016