Leaving as much as possible to your loved ones

When you die, most people wish to leave as much as possible to their loved ones.  This is not always as simple as you might hope.  Her Majesty’s Revenue and Customs (HMRC) will apply 40% tax to the value of your estate over and above the current threshold.  This currently stands at £325,000 per individual and £650,000 for a married couple.    No Inheritance tax is applicable if the estate is being passed to a spouse, as the law sees your property as one estate together, unless there is a will stating otherwise.

Even if a spouse inherits the estate, this only delays the time when tax will be payable as he or she will also pass away one day.  It is worth arranging forward financial planning with a specialist tax adviser to decide whether it would be appropriate to gift part of your estate, perhaps to children or other relatives, during your lifetime, or consider the use of trusts to help with your inheritance planning.

How we can help

At McCrea Financial Services we have a wealth of knowledge of the taxation system and would be more than happy to assist you in ensuring you leave as much as possible to the people you wish to receive your estate.

Firstly, we fully review your financial affairs to identify what the current liability is.  It is also of great importance that we discuss your capital and income needs moving forward as this can have a significant bearing on our advice.  Whilst it is important for most clients to minimise their potential inheritance tax liability, this must not get in the way of their ongoing way of life.  

We can help with advice around gifting and using your allowances each year. You can gift up to £3,000 each year and this is immediately exempt from Inheritance Tax. It can also be possible to make regular gifts out of your income which is immediately exempt but great care must be taken around these to ensure that you comply with the rules. We work together with a carefully selected panel of trusted professional connections, such as solicitors, who can help ensure your legal affairs (wills and trusts) are set in place correctly to meet your Estate’s requirements.

If you'd like to make an initial free no-obligation appointment to establish or review your plans, you can contact us by email or by calling the office on 0141 572 1340. 

The Residence Nil Rate Band

The residence nil rate band came into force on 6 April 2017 but instead of being a simple extra nil rate band, the rules can be complex.

  1. One hundred percent of the transferable residence nil rate band is available no matter when the first spouse died and whether or not the first spouse owned a property.  As long as the estate was below £2 million when they died, the second death occurs on or after 6 April 2017 and the property is left to a lineal descendent.
  2. When valuing the estate for the £2 million taper, you do not deduct any exemptions.  You cannot take off business property relief, agricultural property relief or any other reliefs or exemptions when valuing the estate for the purposes of the residence nil rate band.  This means business owners and individuals who have invested in business property relief schemes may not be entitled if their total estate exceeds the threshold.
  3. Any gifts whether cash or gifts into discretionary trusts do not count towards the estate when valuing for the £2 million taper.  A person can make gifts when they are nearing the end of their life that will not count towards the valuation for the residence nil rate band.
  4. It is possible to transfer unused residence nil rate band from more than one pre-deceased spouse or civil partner by adding together all the brought forward allowance percentages, but the total percentage is limited to 100%.  Careful will planning can be useful for remarried widows and widowers.
  5. If a home is placed into a discretionary trust, even if the trustees will be distributing the trust’s assets to their children, the residence nil rate band will not apply.  It is only under an absolute or interest in possession trust that will qualify as long as the property is left to a close descendant.  Clients may have to revisit their wills to ensure the correct trust is set up to enable them to take advantage of the residence nil rate band.  Settled property in respect of bereaved minors, disabled beneficiaries or 18 to 25 trusts held for direct descendants will still qualify.
  1. Closely inherited means children, grandchildren, great-grandchildren, foster, step and adopted children.  It does not include brothers, sisters, nephews or nieces.  If the estate contains a mixture of both, the value of the home will be apportioned.
  1. If a property is sold, perhaps when someone needs to go into care, the residence nil rate band may not be lost.  There are downsizing rules that came into effect on 8 July 2015 and any property sold on or after that date may still take advantage of the residence nil rate band.  If assets of an equivalent value to the lost amount are left to close descendants, a claim can be made for the extra nil rate band.
  1. The band is not directly applied against the property when someone dies.  Instead, it is applied against the estate before applying the nil rate band.  If the value of the property is less than the allowance, the balance is lost and not applied to the rest of the estate.  People need to be aware of the rules and pitfalls of the residence nil rate band and should seek advice about their wills to ensure they are checked and updated if necessary.  They may need to consider making gifts into suitable trusts to reduce the value of their estate by comprehensive trust planning.


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