Inheritance Tax (IHT) Planning

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Inheritance Tax (IHT) is increasingly becoming a significant concern for many families across the UK. Recent data from the government has shown a notable rise in tax receipts from IHT, underscoring the importance of effective financial planning. At Clarity Wealth Limited, we believe that proactive IHT planning can help mitigate these liabilities, ensuring that more of your hard-earned wealth is preserved for future generations.

Rising IHT Receipts: A Growing Concern

Recent figures reveal that IHT receipts grew to an unprecedented £7.5 billion between April 2023 and March 2024, according to HM Revenue and Customs (HMRC)​ (FT Adviser)​. This significant increase of £400 million compared to the previous year highlights the pressing need for effective IHT planning. Factors such as rising property values and the freezing of tax thresholds contribute to more estates being caught in the IHT net.

Mitigating IHT Liabilities Through Financial Planning

At Clarity Wealth Limited, we specialise in creating tailored financial strategies to help mitigate IHT liabilities. Here are some key approaches we use:

1. Utilising Annual Exemptions and Reliefs

Every individual can take advantage of certain annual exemptions and reliefs to reduce their IHT burden. For example, the annual gift allowance allows you to give away up to £3,000 each year without it being added to your estate.

2. Making Use of the Nil Rate Band and Residence Nil Rate Band

The nil rate band (NRB) allows the first £325,000 of an estate to be exempt from IHT. For married couples and civil partners, any unused NRB can be transferred to the surviving partner, potentially doubling the exempt amount to £650,000. For the 2023/24 tax year, the NRB remains frozen at £325,000. The residence nil rate band (RNRB) provides an additional allowance for those passing on a family home, starting at £175,000 per individual. Combined, a married couple can potentially shield up to £1 million from IHT when passing on their main residence to direct descendants.

3. Setting Up Trusts

Trusts are a powerful tool for managing IHT liabilities. By placing assets into a trust, you can remove them from your estate, thus reducing the taxable amount. Trusts also offer flexibility and control over how your assets are distributed to beneficiaries.

4. Lifetime Gifts and Potentially Exempt Transfers (PETs)

Gifting assets during your lifetime can significantly reduce the value of your estate. If you survive for seven years after making a gift, it becomes exempt from IHT. This strategy requires careful planning and consideration of your financial needs, but it can be highly effective in minimizing IHT.