Inheritance tax is charged on the value of an estate at death, but can also be charged on transfers made. There are various reliefs available on chargeable assets.
Assets in an Estate
Care needs to be taken on the assets in an estate. Some assets are exempt from inheritance tax and need to be held for a minimum period before date of death.
- Shares quoted on the Alternative Investment Market (minimum period to be held is two years)
- Shares in other unquoted trading companies (minimum period to be held is two years)
- Agricultural land farmed by the owner (minimum period to be held is two years)
Agricultural land if let under a farm business tenancy (minimum period to be held is seven years)
Equity Release
Home owners can take out an equity release loan against the home and make cash gifts which could be treated as a potentially exempt transfer. The loan doesn’t have to be taken with an external company it could be taken from a family member, providing the borrower has not given large amounts to you previously as gifts.
The home owner would have to survive for seven years after the transfer for the loan to reduce the value of the estate.
Pension Contributions
You can make payments to a qualifying non UK pension scheme. The benefits of this are:-
- There isn’t a maximum contribution, although if the contribution affects your standard of living HMRC could view this as tax avoidance.
- You can make withdrawals during your lifetime (those withdrawals are taxable as normal pension income) but the remaining balance passes to your chosen beneficiaries on death are not subjected to inheritance tax as long as there is no evidence of deliberate tax avoidance.
Any income made by the qualifying non UK pension scheme is taxed at the potentially lower rate available in the local country rather than the UK rates.
You could invest in a self investment pension plan. You will have to make an expression of wish for each pension plan nominating the beneficiaries.
If you die before the age of 75 the nominated beneficiaries will receive the funds tax free.
If you die after the age of 75 the beneficiaries will be charged at their marginal rate of tax if it is taken as a lump sum or income, but they could transfer the amount to their own self investment pension plan.
The funds are not treated as part of the estate for inheritance tax purposes.
Property Transfers
If you have a children living with you and are likely to do for some time, you could gift a share of the property to them. You would have to survive for seven years after the transfer for it fall outside of inheritance tax.
This would be deemed as a gift to the connected party for capital gains tax purposes and it would be deemed to occur at market value at the date of transfer.