Recently released statistics suggest that UK taxpayers saved millions of pounds in inheritance tax relief between 2014 and 2015.
Tax exemptions
Under UK law, the beneficiaries of an estate (money, possessions etc.) are required to pay inheritance tax if the total assets are over a particular threshold (currently £325,000). However there are ways to reduce inheritance tax obligations. Notably, if the deceased gave away ‘gifts’ while they were alive, their beneficiaries may receive relief on the inheritance tax due on these assets.
If the deceased gave a gift away seven years before they died, beneficiaries would not pay inheritance tax on this asset. However, the level of inheritance tax relief available on gifts given between three and seven years before the donor died is tapered. If the deceased passed away three years after giving the gift, the beneficiary would be liable for 80% of its inheritance tax value. This amount would then decrease by 20% each year e.g. the tax would be 60% on gifts given four years before the donor died.
Inheritance savings
New research quoted by Accountancy Age, an industry publication, suggests that more people in the UK are becoming aware of this tapered inheritance tax relief system. The study found that UK taxpayers saved £30 million (m) on inheritance tax due to tapered relief in 2014 – 2015.
This saving is an increase of 20% from 2012 – 2013; when UK taxpayers collectively saved £25m on gifts due to the tapered inheritance tax relief system. HM Revenue and Customs (HMRC), Whitehall’s tax department, estimates that these savings will continue to increase. HMRC suggested that money saved by taxpayers via the taper will reach £35m between 2015 and 2016.
We should note that in certain instances, HMRC does not allow beneficiaries to utilise tapered inheritance tax relief on gifts. For instance, if a donor gave a property as a gift before they died, but continued to live in said property without paying its market rent, it cannot in any circumstances be eligible for tapered inheritance tax relief.
Turner Little
In conclusion, many people are realising that giving ‘lifetime gifts’ away before they die can potentially allow them to reduce their loved ones’ inheritance tax bills. If you decide to utilise this option, it is advisable to seek expert advice. It may be beneficial to place these gifts into a trust, a legal instrument used to manage a person’s assets, however UK trust creation law can be complex.
Turner Little have considerable experience in this field. We can provide you with the advice required to utilise trusts for tax planning. Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider.
