Airdrie – Cumbernauld – Motherwell – Bellshill – Coatbridge – Wishaw
Hamilton Ross
Solicitors and notaries
Serving Clients in Lanarkshire for over 15 Years.

Lifting the veil around Inheritance tax

The Office of National Statistics recently reported a steep increase in the total inheritance tax
being collected by the UK government. Following record highs of last year, the annual amount
of inheritance tax collected by HMRC has now risen above £5 billion for the first time ever.
Inheritance tax is a conflicting topic. While some think it is an essential element of the
redistribution of wealth, others might say it is unfair to tax assets which have been
accumulated (and likely already subjected to income tax) during one’s lifetime.

Notwithstanding the above, there is a general lack of understanding regarding inheritance tax.
This could become increasingly relevant as more and more individuals will fall over the
applicable thresholds, particularly in locations boasting flying housing markets, such as the
Edinburgh and Glasgow metro areas.

Inheritance tax is payable on estates valued over £325,000 for single individuals, and
£650,000 for married couples and those in civil partnerships. It is generally charged at a rate
of 40 per cent on any portion of an estate exceeding these thresholds.

Reforms by the UK government which came in effect in April of this year mean that people
can bequest an additional £100,000 to a direct descendant to offset the value of the family
home, taking the allowance for single people and couples to £425,000 and £850,000,
respectively.

There are a number of exemptions and reliefs. These mean that there are options available
should one wish to reduce their inheritance tax bill and maximise the amount left to inheritors.
The most straightforward option remains to give assets away. If one survives seven years
from the date of a gift to an individual, that gift is completely exempt from inheritance tax.
Assets with an unlimited value, therefore, could be given away at any stage and, provided that
the benefactor survives for seven years from the date thereof, the assets disposed of would
be outwith the latter’s estate for inheritance tax purposes.

Important issues to consider are how much to give away and to whom. When considering
what amount to gift, it is crucial to retain sufficient assets and/or income to maintain a standard
of living beyond the date of any gift(s). Any future care costs should be considered here.
Choosing an appropriate recipient(s) can be even more challenging. Older individuals now
often elect to skip their children and make gifts directly to grandchildren, thus providing much
needed financial assistance at an earlier stage in life.

Thought should be given as to achieving equality and fairness among different branches of
the family. Benefactors might also wish to take into account how a recipient will use a gift, and
retain a degree of control in that regard.

Appropriate professional advice should always be sough in cases where an estate may be
affected by inheritance tax. The options available in the circumstances will differ, so it is
important to make a fully informed decision. Remember, ignorance is not always bliss!

This blog was written by Tom Vasov, LLB (Hons), Dip LP.

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