Don’t forget the basics – IHT planning

Q: My husband died five years ago, leaving everything to me. I’m in good health but I‘ve started to worry
about inheritance tax. I have a very nice house worth £500k and investments worth about £1 million. I will be leaving everything to my children, but want to try to avoid leaving them with a large tax bill.
 
A: It’s rare for me to be able to give good news, but the Inheritance Tax (IHT) bill on your estate is set to decrease as the new Residence Nil Rate Band comes into effect over the next few years. This new allowance can be claimed for estates which include a main residence. Your potential IHT bill currently is £340,000, which is a substantial
amount. I have calculated this as follows:

Your assets                                                 £1,500,00
Less: Your nil rate band (NRB)               £325,000
Less: Your husbands NRB                        £325,000
Amount subject to IHT at 40%              £850,000, So IHT £340,000

Between April 2017 and April 2020 the Residence Nil Rate Band (RNRB) will be gradually phased in, so that by April 2020 the calculation will look like this, assuming all other things are equal.
 
Your assets                                                  £1,500,00
Less: Your NRB and RNRB                        £500,000
Less: Your husbands NRB and RNRB     £500,000
Amount subject to IHT at 40%              £500,000 So, IHT £200,000

So your children’s potential IHT bill drops to £200,000.
 
Q: That sounds good – but what if I downsize as I get older?
A: The family home doesn’t need to be owned at death to qualify. This would apply to people who may have downsized or sold their property to move into residential care or a relative’s home.

The RNRB will still be available as long as:
• The property disposed of was owned by the individual and it would have qualified for the RNRB had the individual retained it;
• The replacement property and/or assets form part of the estate and pass to direct descendants.
Downsizing or the disposal of the property has to take place after 8 July 2015. But there is no time limit on the period between the disposal and when death occurs.
 
Q: Is there anything else I should think of?
A: Yes – remember the basics of IHT planning
• Die owing as little as possible; therefore make lifetime gifts as appropriate
• Consider investments that give you a reduced rate of IHT and
• Consider life cover to provide for an eventual IHT bill
In your case I would suggest you find advisers who can integrate good tax and investment planning to assist you.