Michelle is an award-winning chartered financial planner who holds the designation 'Fellow of the PFS' demonstrating her commitment to maintaining the highest standards of knowledge, ethical conduct, and professional practice. Michelle is also an accredited member of the Society of Later Life advisers. Michelle offers a fully personalised service tailored to each clients individual needs and goals, using an approach that was recognised and honoured by the Women in Financial Advice awards in 2021. Clients working with Michelle can expect a high level of professionalism, integrity and a lasting relationship built on trust and open communication
It’s a type of tax charged by the Inland Revenue or HMRC on a deceased person’s estate. The estate consists of all the property and assets owned by that person at the time of death.
There are two main allowances for inheritance tax. The big one is the nil rate band – this is the amount of the estate that is not subject to inheritance tax. It’s currently £325,000 and it has been for some time. There are no signs of it increasing.
People also have the possibility of the residence nil rate band which is a separate allowance relating to a person’s home at the time of their death. That allowance is another £175,000. If you qualify for that allowance, it is in addition to the nil rate band of £325,000 but it will only be relevant if you leave your home to your spouse or direct descendants – your children or grandchildren, including adopted, foster or stepchildren.
It’s fully available if your estate is worth less than £2 million. If your estate is worth more, then that nil rate band gets eroded.
There’s no tax to pay on assets left to charity. That can sometimes be considered an allowance, although other people call it an exemption. There are also reliefs and exemptions in relation to inheritance tax that can be used during your lifetime, rather than on death.
There are a number of reliefs and exemptions that can be used both ethically and lawfully to reduce the amount of inheritance tax that your estate will pay. The main thing is working with a financial planner to establish which ones will work best for you and your circumstances.
We can help you achieve your objective of reducing or mitigating the liability of your estate, whilst also making sure that your preferences are considered. There are a number of ways to do it – but some will be more right for you than others. So it’s worth considering all options before making a decision about which ones to use.
A deed of variation is used by somebody who’s already inherited. Maybe they’re the beneficiary of a will or they’ve been left assets from somebody who died without a will. Essentially, it allows that beneficiary to redirect their inheritance to someone else. It effectively rewrites the will of the deceased person.
You must use the deed of variation within two years. There are other rules to adhere to, but it can be used to reduce inheritance tax if the will wasn’t set up tax efficiently. It can also be used to improve the inheritance tax position of the beneficiary’s estate.
For example, if I left you some money in my will that you didn’t actually need, and it meant that your estate would be worth over £2 million, you could do a deed of variation. You would give the money I left to you to someone else, reducing your estate below £2 million and keeping your nil rate band.
We offer a complimentary introduction meeting to understand your existing plans and your financial objectives so that we can offer you the right advice and service that meets your objectives and your preferences.
Potentially yes, equity release can be used to reduce inheritance tax liabilities. It’s definitely not the main reason to use this kind of scheme. You must consider the benefits and the drawbacks.
Working with a planner will help you to consider this. Equity release will only work in inheritance tax planning if the money raised from the equity release is spent and no longer forms part of your estate.
Most equity release mortgages are set up as ‘Gross Rollup’ which means that the monthly interest owed on the original loan rolls up. The bigger the debt, the more your estate has to pay off. That will reduce the value of the estate for inheritance tax planning. So it can work, but it’s certainly not the main reason to choose equity release.
I’m often asked this and my answer is that you should always get married if you are totally in love with somebody that you want to share your life with. But there are of course tax advantages that we can’t ignore.
Married partners and civil partners can transfer assets to each other free from capital gains tax and inheritance tax. In addition, spouses and civil partners can inherit each other’s nil rate bands and residents’ nil rate bands as well.
If, for example, we decided to get married, and I passed away first but I left you all my assets you’d also inherit my nil rate band and my resident nil rate band. Whoever you chose to leave the assets to would have a bigger allowance without paying inheritance tax on your estate.
There are a few other tax benefits to getting married as well. But you should only get married to somebody that you care about and trust. I can’t answer this question without mentioning romance scams, as these are on the rise. It is actually easier to get married than it is to change somebody’s will. The threshold is much lower for marriage and somebody’s marriage is unlikely to be challenged in the same way that somebody’s will would be.
So if you are thinking about getting married for tax benefits or otherwise, talk to your friends, family and trusted advisers like us. We can help you make a decision that’s in your best interests. We can talk to you about the advantages and disadvantages and make sure you have considered everything.
Marriage revokes your original will and gives your spouse legal rights to your assets and estate on death. That’s fine if it’s what you want. I saw a programme about romance scams recently, which said if you haven’t been the victim of a scam yet, it’s because the right scam hasn’t found you. Scams are set up so cleverly. They work on different types of people with different psychologies. We are all vulnerable to these things. Romance scams are a particular threat at the moment and they are efficient and effective – so please be careful.
You can absolutely buy your parents’ house and you can give your house away if you want to. Whether it works for inheritance tax mitigation strategies very much depends on whether the person that owned the property in the first place continues to benefit from it. Whether they’re paying market rent to the person that it’s been gifted to is also relevant. It depends who lives in the home and many other factors as well.
This area of advice is very complex. It needs careful planning and you should always consult a solicitor before you decide to go ahead and do it.
There’s a general misconception that the allowances that you get for inheritance tax are the maximum amounts you can give. Most people are aware that there is an annual gifting allowance of £3,000 – but that doesn’t mean you can’t gift more. It just means that if you do gift more, the gift will be considered as part of your estate for the following seven years.
You can give away as much or as little as you want, you can give everything, you can give half – anything you like. There are no limits on what you can gift. The limit on is how much will be exempt from inheritance tax if you die within seven years of making the gift.
The annual gifting exemption is £3,000. There are also other gifting exemptions – giving to charity is exempt, as are gifts in relation to special occasions like weddings, anniversaries or birthdays. You can also give gifts from your regular income – some of those will not be considered part of your estate for inheritance tax, whether your death falls in the seven years or not. But that is very complicated. There’s an awful lot of rules, but no limits. You can gift what you want.
On the whole, pensions are exempt from inheritance tax. They aren’t part of your estate for IHT purposes. But there can be some exceptions to this rule, and your financial advisor will confirm if they apply to you.
In order for your pension not to be exempt from inheritance tax you would have had to take some action with a financial planner. If you’re concerned you can speak to your adviser, Citizens Advice, the pensions helpline or your pension provider.
No, it doesn’t. If you’ve got a joint account, the surviving person will inherit the whole account. However, your share of that account will be considered as part of your estate for valuing.
If you have the account set up as joint tenants where you own a part and somebody else owns a part, it will still form part of your estate for inheritance tax. Your share of the bank account will be distributed according to the terms of your will or according to the terms of intestacy.
So it will always be included in the calculations for inheritance tax purposes. If the joint account holder is a spouse, transfers between spouses are exempt from IHT anyway, so it depends who you hold the account with.
When we tell you about a fee, you will always receive a clear explanation of: The total fee, the advice service it relates to, how it's been calculated, when you need to pay it and your payment options.
A limited company is its own entity, and as it’s not a person it doesn’t die. However, you as an individual may own the shares of a limited company and this is where the IHT relief can come into play. Shares in an unlisted company – it has to be unlisted – may qualify for something called business property relief which is 100% exempt from inheritance tax.
Shares do form part of the estate calculation, but you don’t pay inheritance tax on the value of them. You’ve got to have held those shares for at least two years before they can qualify for business property relief. Companies that may be listed or where you own a larger share would only qualify for 50% relief.
There are reliefs available in relation to a limited company and as usual there are lots of rules that need to be met to qualify. Seek financial and legal advice on this.
Inheritance tax planning is a complicated area of advice and it’s one that we specialise in. There are a number of different ways of ethically and legally reducing the amount of tax that your estate is liable to pay.
It’s more likely you will achieve that if you start planning early with your advisor. As soon as you start to think that this might be an area that you want to look into, or that inheritance tax might be payable on your estate, give us a call.
Book an appointment and we can start the discussions and make sure that you understand all the different options available to you. We’ll make sure you’re taking the right course of action for your circumstances and that you understand all the consequences – not just for you, but for your family as well. Some routes you can take will have a direct impact on the beneficiary of your will or any gifts.
HM REVENUE AND CUSTOMS PRACTICE AND THE LAW RELATING TO TAXATION ARE COMPLEX AND SUBJECT TO INDIVIDUAL CIRCUMSTANCES AND CHANGES WHICH CANNOT BE FORESEEN.
INHERITANCE TAX PLANNING AND TAX PLANNING ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
EQUITY RELEASE & LIFETIME MORTGAGES WILL REDUCE THE VALUE OF YOUR ESTATE AND CAN AFFECT YOUR ELIGIBILITY FOR MEANS-TESTED BENEFITS.
ESTATE PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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