Owning a residence which is left to direct descendants
The Inheritance Tax residence nil-rate band (RNRB) came into effect on 6 April 2017. The RNRB provides an additional nil-rate band where an individual dies on or after 6 April 2017, owning a residence which they leave to direct descendants. During the 2017/2018 tax year, the maximum RNRB available is £100,000. This rises in £25,000 increments in subsequent tax years until it reaches £175,000 in 2020/2021, after which it will be indexed in line with the Consumer Prices Index.
Potential implications of such gifts with regard to Inheritance Tax
Some people like to transfer some of their assets whilst they are alive – these are known as ‘lifetime transfers’. Whilst we are all free to do this whenever we want, it is important to be aware of the potential implications of such gifts with regard to Inheritance Tax. The two main types are potentially exempt transfers (PETs) and chargeable lifetime transfers (CLTs).
Failure to take action could compromise the long-term financial security of the family
If a person wants to be sure their wishes will be met after they die, then it’s important to have a Will. A Will is the only way to make sure savings and possessions forming an estate go to the people and causes that the person cares about. Unmarried partners, including same-sex couples who don’t have a registered civil partnership, have no right to inherit if there is no Will. One of the main reasons also for drawing up a Will is to mitigate a potential Inheritance Tax liability.
‘Ring-fencing’ assets to minimise or mitigate Inheritance Tax
Appropriate trusts can be used for minimising or mitigating Inheritance Tax estate taxes and can offer other benefits as part of an integrated and coordinated approach to managing wealth. A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Once the trust has been created, a person can use it to ‘ring-fence’ assets.
Taking control of decisions even in the event you can’t make them yourself
A lasting power of attorney (LPA) enables individuals to take control of decisions that affect them, even in the event that they can’t make those decisions for themselves. Without them, loved ones could be forced to endure a costly and lengthy process to obtain authority to act for an individual who has lost mental capacity.