The government can change the tax rules at every budget and it is difficult for entrepreneurs who have built up a successful business or those who have amassed wealth in other ways to work out how to protect their families for the future.
Most people want their children and grandchildren to benefit from their wealth after they die, but the government may take a slice of anything over approximately £425,000, and for many families this can result in a substantial tax bill after a death
The solution will be different for each individual and family depending on their particular circumstances, but the most important advice is to think about it early. You can effectively make gifts to your family of up to £325,000 every seven years, so if you have substantial wealth it may be preferable to ensure your children and grandchildren benefit in your lifetime, rather than being lumbered with a substantial inheritance tax bill after your death.
You can give away £3,000 a year tax free and can also make gifts of between £1,000 and £5,000 to friends / relatives on their wedding (depending on your relationship) and people with excess income could look at making regular gifts out of the excess – to their grandchildren, for example.
Tax planning is more restricted now than in the past, but there are specific reliefs for certain assets and it is worth sitting down with a specialist and looking at these. For instance, shares in a family business or a portfolio of shares in AIM-listed companies can be passed on without inheritance tax in some circumstances.
If you own agricultural property or woodlands, these can also benefit from relief from inheritance tax and, if you own valuable works of art or a ‘heritage’ property, it may be possible for your heirs to claim exemption from inheritance tax, provided certain undertakings are given, including allowing the public reasonable access, and these continue after your death.
Making a Will is important, as is revisiting it regularly, and ensuring that it is drafted in such a way that it does not encumber your loved ones with a hefty tax bill.
Where you were born is also a factor: individuals born outside the UK who have not lived here for more than 15 years will not be liable to tax on their non-UK assets, and they may also be able to take advantage of the benefits of an overseas trust. The families of UK citizens who die after they have permanently retired overseas to the sunshine may also face a lower tax bill.
Everyone is different and spending a little time looking at your own situation with a tax advisor can keep many thousands of pounds in the hands of your family, helping to give you peace of mind.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.