A Grim Reap?

25th May 2022

We work hard to improve our lot and most of us hope that our loved ones will reap some benefit from our endeavours. But assuming that we don’t manage to spend all the fruits of our labours, the taxman is lurking. And he will take a sizeable chunk if we don’t plan sensibly.


The Inheritance Tax nil rate band – the amount of wealth we can pass on – has been frozen at £325k until 2026 and hasn’t increased since 2009. So it’s being eroded by inflation, although we do now have the Residence nil rate band (RNRB), introduced in 2017. This is intended to cover the residence in prescribed situations.  Although it potentially provides further relief of £175k and £350k for a couple, it comes with restrictions and barely covers the value of an average home nowadays. It’s reduced where the value of an estate exceeds £2m and snatched away entirely where an estate is valued at more than £2.7m.


If one spouse leaves their entire estate to the surviving spouse and the combined estates exceed £2.7m, even though neither estate exceeds the limit, both RNRBs are lost.  A nasty trap but one which can be easily avoided with careful planning.


The mechanics of the RNRB are perhaps too complex for this article so let me touch on the other more easy-to-understand reliefs.  We all have an annual exemption of £3,000.  We can make small gifts of £250 to any number of individuals and both these reliefs take immediate effect. We don’t need to survive the gifts by seven years.


If we are fortunate enough to have more income than we need (which exacerbates any IHT liability) we can give the surplus away free of any IHT implications, provided we make a habit of doing so.  Again, we don’t need to survive the gifts by seven years.  This is a very valuable but oft overlooked relief.


So maybe we just need to work a little harder but direct our efforts in looking at how to protect what we already have. Few of us would choose the taxman as a significant beneficiary of all our hard work.  We can help you ensure his legacy is minimised.

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