A Brief Guide to Inheritance Tax Planning

Nobody enjoys thinking about what’s to come after we’ve gone; but for many, it’s important to to keep some element of control when it comes to passing on assets. To make sure that your loved ones are properly provided for, it may be a good idea to start looking into inheritance tax planning.

With lots of rules, exemptions and reliefs, Inheritance Tax (IHT) can easily get quite complicated; but planning ahead for is just as important for elderly life as planning for retirement or downsizing to a garden annexe.

As a result, we’ve created this brief, beginner-friendly guide to help you understand the current guidelines; and teach you the basics you’ll need to know going forward.

A Background to Inheritance Tax Planning

So what exactly is Inheritance Tax? Well – it’s a tax on your estate’s net value following your death; and can directly reduce the amount you’ll be able to leave for your friends or family. Your estate is the combined value of everything you owned upon dying; so that’ll be your money – both physical and what’s in your bank or building society account; as well as the value of any properties or assets you leave behind.

mature couple that may consider inheritance tax planning

Getting to Grips with the Nil Rate Band

The first – and most important step when it comes to Inheritance Tax Planning is understanding what the current guidelines are. At the moment, IHT is levied on estates exceeding in value of £325,000 – though this figure is subject to change in the future. This is the Nil Rate Band (NRB); and is the amount up to which an estate has no Inheritance Tax to pay.

Every individual has their own NRB allowance; but there are certain circumstances that allow for these to be added together. If you’re married or in a civil partnership, and your estate is valued at less than £325,000; any used threshold can be added on to your partner’s to increase it after your death.

While the NRB threshold protects your estate from IHT up to the value of £325,000; if the value of your estate is more than that – you’ll be taxed at a rate of 40% for everything above it. Overall, this works out to be a considerable amount; with the UK’s inheritance tax receipts amounting to approximately £5.32 billion in the 2020/2021 tax year.

Adding in The Residence Nil Rate Band

On top of the NRB, there’s an additional allowance that can be applied to your estate if the family home is being passed on to the next generation. Known as the Residence Nil Rate Band (RNRB); this extra threshold also applies if it’s being given to adopted, fostered or stepchildren.

For the 2020/2021 tax year, the maximum RNRB that can be applied to an estate is £175,000. Since this would get added to your existing nil rate band allowance; it would mean that your estate could be worth up to £500,000 before you become liable for inheritance tax.

What’s more, this doesn’t mean you have to hold off on selling your property if you want to access the RNRB; it also applies if you’re giving the proceeds from the sale. We’ve previously highlighted some of the benefits of moving into a granny annexe; but it can also help towards inheritance tax planning. By liquidating some of your assets, you’ll have a better idea of your estate’s worth and thereby be able to manage your IHT bill more effectively.

Gifting Allowances and Exemptions

Many people want to keep an element of control when it comes to inheritance tax planning and passing on their assets; and so they may choose to give some of their estate away prior to their death. There are several ways you can pass on your money; from one-off payments to providing a regular income – or even putting a trust in place for more complex or long-term gifting.

There are, however, some limitations to what you can give away under the current IHT guidelines. For example, most gifts that leave your estate will still be liable for inheritance tax if they were given within seven years of your death. Most financial gifts will officially leave your estate after seven years have passed; thereby reducing its size and potentially the IHT bill you leave behind.

Every individual also has an annual gifting allowance – which can allow you to give away some of your estate tax-free. Financial gifts of up to £3,000 can be given each year, whether it’s paid to an individual or divided between a group; and still be exempt from IHT.

There’s also incentives in place for those who may wish to donate some of their estate to a registered charity. Those that choose to give away 10% or more of their estate’s net worth, will see their IHT tax rate reduced from 40% to 36%.

Couple at home

Do Your Research, Get Some Advice

There are many other exemptions when it comes to giving away financial gifts tax-free; such as the ability to give a child up to £5,000 on their wedding day – so it’s worth doing your research to find out what’s on offer.

Most importantly though, inheritance tax planning isn’t just about being able to pass on money when you die – it’s also about ensuring you still have enough to enjoy your life for the years to come. Much like your retirement planning, it’s important to seek some financial advice and start planning early; so that you can have peace of mind that you and your family can live comfortably for years to come.

Talk to iHus Today

Our dedicated and friendly team is ready and on-hand to offer their expert advice to help many people that have faced the difficulties of planning for elderly life. With over 200 annexes and over ten years experience in the industry – we take pride in making sure our clients feel as ready for what will come as they can.

Get in touch with our team today to see how we can help you with planning for your future.

Recent Articles

Advice

Building an annexe garden living space – The customer journey

It’s a rare opportunity for people to design and build their own bespoke, brand-new home – unless you’re investing in an annexe for garden living that is. 

Annexes are chosen by countless property owners across the country, each of whom have their own unique requirements, vision, build journey, and end result.

Read More »

Quick Links

Featured Projects

nielsen annexes

Nielsen

At 93 years young, Jeanne has moved into her stunning new Annexe home, and the whole family are loving their new multigenerational living arrangement. Jeanne adores having her grandchildren over an...
granny annexe projects

Jenny Haughton

We recently visited the Haughton Family to see how garden annexe living was working out for them. It's safe to say they feel like it was the perfect choice. Watch the video below to hear their expe...
DCIM/102MEDIA/DJI_0478.JPG

Holbrook

Every annexe is designed around you, no iHus is alike. Find out how our customer Peter is getting along in his iHus 1 year on, and let him take you on a tour around his cosy annexe home on his Son ...
Gould Annexe

Gould

The Gould's moved from South Wales to Bournemouth, as they felt their 5 year old grandson was growing up quickly and they wanted to be involved with his day to day life. They are only 2 months into...
1

Esher

This 1 bedroom bespoke Annexe is home to a family from South Africa, their Annexe has enabled them to live in an area that they love close to their beloved family and grandchildren. Find out how th...
hamm

Wendy Hamm

In Autumn 2020 Wendy Hamm and her family approached iHus as they were contemplating an annexe build in their back garden to house Wendy’s mother. Wendy’s mother Jane, 82, was living over an hours d...
Load More

Download our iHus annexe brochure

Download our iHus annexe brochure

If you would like to download our annexe brochure, please complete the form below. You can also request for a hard copy to be posted to your home address. Have any further questions, why not request one of our team get in touch?

If you would like to download our annexe brochure, please complete the form below. You can also request for a hard copy to be posted to your home address. Have any further questions, why not request one of our team get in touch?






    Yes





    Talk to an expert

    Whether you’re looking to build a garden annexe, or just have a quick question, get in touch with us today and one of our friendly team will get back to you.





      Download our iHus annexe brochure

      If you would like to download our annexe brochure please complete the form below. You can also request for a copy to be posted to your home address. Have any further questions, why not request one of our team get in touch?






        Yes





        Get in touch with iHus

        If you want to speak to one of the team about how Multi-Generational Living can be achieved by building an annexe. Complete the form below.


          Is an Annexe right for you?

          Save time scrolling and speak with one of our annexe experts to find out if an annexe would work for you and your family.





            Book your Free Open Hus Visit

            If you would like to view an annexe show home, please complete the form below. Have any further questions, why not request one of our team get in touch?






              Yes





              Download our Annexe Financial Guide

              If you would like to download our annexe finance guide please complete the form below. Have any further questions, why not request one of our team get in touch?

              Download our iHus annexe brochure

              If you would like to download our annexe brochure please complete the form below. You call also request for a copy to be posted to your home address. Have any further questions, why not request one of our team get in touch?

              Download Your Free Annexe Brochure






                Yes