However, there are a number of exemptions and reliefs
available which Mr Jones can benefit from:
• £3,000 annual gift exemption per tax year and any unused
annual exemption can be carried forward for one year only.
• Gifts made in consideration of marriage. This allowance is
worth £5,000 if the relationship is that of parent to child,
£2,500 if from a grandparent and £1,000 for any other
person
So, the value of the gifts made by Mr Jones which fall back
into his estate are reduced for the above exemptions as
follows:
December 2012 gift to nephew
£50,000
Less 2011/2012 unused annual exemption
£3,000
Less 2012/2013 annual exemption
£3,000
Reduced value of gift for IHT purposes
£44,000
July 2014 gift to niece
£50,000
Less 2013/2014 unused annual exemption
£3,000
Less 2014/2015 annual exemption
£3,000
Less marriage exemption
£1,000
Reduced value of gift for IHT purposes
£43,000
Mr Jones’ revised estate therefore becomes £403,500
(£316,500 assets plus £87,000 reduced value of gifts). After
taking into account the £325,000 nil rate band the excess of
£78,500 is taxed at 40% to give an IHT liability of £31,400.
The example of Mr Jones is a very straightforward one,
but it highlights how people can find themselves with an
unexpected IHT liability as they often don’t realise the types
of assets which need to be included in the estate or the fact
that gifts made in the seven years before death have to be
considered.
No two estates will be the same and there are a number of
other reliefs and exemptions available which can substantially
reduce the amount of IHT that might be due, especially if
your estate includes an interest in a business such as a share
of a partnership or shares in a limited company.
IHT is a complex area, and this article is just the tip of the
iceberg!
For more information on Inheritance
Tax call Lucy on
01228 711888.
12
david-allen.co.ukAUTUMN/WINTER 2016
AUTUMN/WINTER 2016
david-allen.co.uk13
For more information on Inheritance Tax
call Lucy on 01228 711888.
Lucy Metcalf
Tax Specialist
lucy.metcalf@david-allen.co.ukIHT, which is charged at the rate of 40%, is currently due if a
person’s estate is worth more than £325,000 when they die.
Failure to take advice about how best to plan your affairs in a
tax efficient way can result in your hard earned assets being
passed to the tax man and cause much upset for those left
behind.
Recent years have seen a string of high profile celebrity
deaths and while you might expect that the rich and famous
would have their affairs in order this is not always the case.
But, do not assume that IHT is only a problem for the super
rich! The following example shows how easy it is to get
caught out...
In February 2016 Mr Jones, who had never been married,
died at the age of 71 owning the following assets:
Asset
Value
House
£230,000
Cash in the bank
£6,000
Car
£7,000
Gold watch
£13,000
Portfolio of shares
£25,000
Antiques collection
£12,000
Household goods
£3,500
Life insurance payment
£20,000
Total
£316,500
So, on the face of it Mr Jones’ estate is under the £325,000
limit so it looks like no IHT is due.
“...do not assume that IHT is only a problem for
the super rich!...”
However, when calculating the value of an estate for IHT
purposes you also need to include the value of any gifts
made in the previous seven years. This rule was introduced
to stop people giving away all of their assets on their death
bed to avoid paying any IHT.
In the seven years before Mr Jones passed away he made
the following gifts:
To his nephew, in December 2012 (2012/2013 tax year) –
£50,000
to help him purchase a house.
To his niece, in July 2014 (2014/2015 tax year) –
£50,000
in
consideration of her marriage.
As these gifts were made within seven years of Mr Jones’
death then they are brought back into the estate for IHT
calculation purposes.
Mr Jones’ revised estate is therefore:
Value of assets held at death
£316,500
Value of gifts made in seven years before death £100,000
Total
£416,500
As the first £325,000 of an estate is free from IHT, then you
would expect that 40% IHT is due on the £91,500 excess,
giving an IHT liability of
£36,600.
Inheritance Tax – don’t let your
loved ones lose out.
As Tax Advisers we o en see enthusiasm from our clients
when it comes to reducing their annual Income Tax bill.
However, ask a client if they would like to discuss their
exposure to Inheritance Tax (IHT) when they eventually
pass away and it is a completely di erent ball game!
IHT 40