It is time to use your annual IHT exemptions – sharpish!
Or lose them.
But don’t send a cheque. HMRC only count a gift of money as being complete when the person it has been given to has full control over it. The maximum an individual can give under these rules is £3,000 each year. So a cheque which hasn’t been cleared by 5th April will come out of next years IHT allowance, and you will have lost the unused allowance from the previous year forever, as it is currently only possible to carry forward the allowance for one year. So if you haven’t made any gifts in the current and previous tax year, could give £6,000 under this IHT exemption which would be immediately outside your estate – a potential saving of £2,400 or £4,800 for a couple. The gift can be shared, it doesn’t have to go to one person.
One very useful IHT exemption (often forgotten about) is to be able to give £250 to an unlimited number of people (as long as they didn’t get any of the £3,000 or larger gifts). Again. It is an annual allowance.
The Property Nil Rate Band allowance is going to be lost to tens of thousands of people because their Wills are no longer correctly structured. That could be an unnecessary tax bill of £140,000 for the sake of revising your Wills.
Back to Inheritance Tax. If your income consistently exceeds your outgoings, you can establish a pattern of regular gifts (“gifts out of normal income”) which will, in time, become exempt from Inheritance Tax too. But expect the taxman to ask for proof when you have gone, and to disallow the gifts if they can!
Everyone over 18 should have both types of Lasting Power of Attorney – one to manage finances when you can’t, the other to ensure your interests are protected when you are seriously ill or in need of a Nursing Home. Most people would prefer their families to be in charge rather than the Court of Protection.
This allowance can be carried forward to the next tax year to the extent that it is unused. However, this is limited to one tax year only, so if you had not made such a gift in the previous tax year you could now gift £6,000 without affecting your nil rate band allowance. Once the clock turns midnight on 5th April, a new tax year will start, permitting you to make another £3,000 gift. Therefore provided the above were followed, £9,000 in total could be gifted between now and 5th April 2019 without impacting on your estate’s NRB and making a potential tax saving to IHT of £3,600.
Gifts between married / civil registered couples are exempt, so you can potentially use both allowances even if all the money is in one name.
Giving over 10% of your estate to Charity, if correctly structured in your Will, will currently drop the rate of IHT on the rest of your estate significantly.
There are other issues which may be relevant too.
Can your beneficiaries afford you missing out on the opportunity to help them even more?