Time is Ticking on the IHT Clock
Did you know you can give as many individuals as you please £250 each. As long as the gift doesn’t exceed this amount (even by a £1) it doesn’t count in your Inheritance Tax calculation. Handy if you have lots of grandchildren!
You are also entitled to gift up to £3,000 each tax year either as a lump sum or as part of a series of gifts. This comes in useful if you have a life policy in trust to cover your Inheritance Tax bill, as this can be used to cover some or all of the premiums to the plan.
If you have a loan trust, you may want to consider waiving £3,000 of your outstanding loan into the beneficiaries pot and it won’t count as a potentially exempt transfer (PET) or a chargeable lifetime transfer (CLT) as it’s exempt. Don’t forget that if you didn’t use last years, you can carry the £3,000 forward as long as you firstly fully use up this year’s exemption.
Another underused exemption is for gifts out of income. If you have surplus income and can create a pattern of regular gifting, which doesn’t affect your standard of living, these gifts can be classed as exempt. Remember it has to be ‘true’ income such as salary, pensions or interest from your bank account. The 5% tax deferred withdrawals from bonds do not count nor can you use them to replace the income. This can also be used to fund life premiums on a trust held policy, however, if you have a large excess amount, you can place this into trust on a regular basis and it won’t count as a PET or CLT either.
If you wish to consider lump sum gifting, then the sooner the seven-year clock starts the better. If you have an existing bond, you may consider placing it into trust if personal access is no longer required.
A bond is an efficient asset to place in trust as it doesn’t produce income, meaning there’s no need for an annual tax return. Bonds are generally segmented, which means the trustees can subsequently assign segments to discretionary beneficiaries (as long as they’re over age 18) who can then encash at their own marginal rates of tax. Gifts into and out of trust do not trigger chargeable events for income tax purposes. The transfer into trust will be either a PET or a CLT depending on the type of trust used and will normally drop out of the IHT calculation after seven years. Ideal if you are looking to reduce your estate for IHT purposes.
These exemptions are available each year and form an important part of your IHT planning.
As one of the leading IFA practices in Greater Manchester, Logic Wealth Planning has a team of experienced Financial Advisors specialising in Wealth Management. Working closely with clients in the Heywood, Rochdale, Bury and surrounding areas across the North West, we believe that however modest your income may be, when it comes to Pensions, Bonds, Savings and Investments – or you need advice on the latest regulations surrounding Inheritance Tax we can provide the very best financial advice, ensuring that your money is working hard for you and allowing you to enjoy a comfortable lifestyle right through to and including your Retirement years. For your first meeting with us – entirely free and without obligation – please call us now on 0808 1234 321. We look forward to hearing from you.