01st June 2016
Over £3m Inheritance Tax Free?
The answer to this question, as with many for tax, is yes…but only for some and only with careful planning.
You may be familiar with the new Residence Nil Rate Band (“RNRB”), which means that many couples will be able to pass on an additional sum up to £350,000 free of Inheritance Tax to their children when they die – subject of course to some particularly complex rules and hidden traps. This is in addition to the existing combined Nil Rate Bands for a couple which stand at £650,000. By 2020 many couples will be able to leave £1m of their estate to their children free of Inheritance Tax. In addition, some pension pots can be passed on free of Inheritance Tax.
You may have taken advice on the new pension rules. In brief, pension funds which are in “drawdown” (and have not been converted already to annuities) can pass to your children Inheritance Tax free if you die under the age of 75. If you die after the age of 75 then the inherited pension pot will be taxed at your chosen beneficiary’s marginal rate of Income Tax (particularly favourable if you nominate to children or grandchildren who are not working). Each person can pass on a pension fund of up to £1m, so £2m for a couple. The amount could be higher if you have previously applied to “protect” your pension pot.
In combination, from 2020, this is at least £3m which can pass to your children free of Inheritance Tax. In addition, there are other, lifetime, ways of passing on money Inheritance Tax free. However, these generous allowances only work for those who plan carefully how they can use them. It does require a complete rethink on how one should deal with Wills, Pension nominations and investments. For example:
- One’s house – sell? Downsize? Upsize? Who should inherit?
- Nil Rate Band Discretionary Trust legacy vital again? - should it be reinserted in your Will? Or removed?
- Should existing beneficiaries under the Will and the Pension Nomination be swapped? Many Pension Nominations need changing again at age 75.
- Rearranging which income sources you should spend during retirement (it may now be better to spend from your ISA account in order to preserve your Inheritance Tax free pension pot).
If you not yet one of the many who have taken specific advice on these changes and how they affect your family, then we will be pleased to assist you.
For more information please visit our Inhertiance Tax page or contact one of our private client solicitors.
Milton Keynes - Carolyn Bagley, on 01908 247015 or click here to email Carolyn.
Cambridge - Bernadette O'Reilly, on 01223 532763 or click here to email Bernadette.
Northampton - Antonia Cooper, on 01604 463314 or click here to email Antonia
London - Francesca Rossi, on 020 7831 8888 or click here to email Francesca.