Whether you have seen it or not, the hit HBO series Succession and its portrayal of a family at war over the future of a global media empire has shone a timely spotlight on the intricacies of inheritance.
In real life, few families are quite so scheming or bitter as the Roy clan. But it’s not only the super-rich who should be making plans for passing on their assets as inflation and soaring property prices draw increasing numbers of people into paying inheritance tax (IHT).
According to figures published in April, last year HMRC raked in £7.1bn in inheritance tax receipts, a rise of £1bn compared with the previous year. The growing revenues have triggered a wave of calls to abolish IHT, which has been named the UK’s most hated tax.
Sometimes known as the ‘death tax’, inheritance tax is a tax on the estate of an individual who has passed away.
The amount paid depends on the value of the deceased's assets - cash in the bank, investments, property or business, vehicles, pay outs from life insurance policies - minus any debts, with a 40% tax rate applicable to anything over the nil rate band of £325,000 unless left to a spouse or civil partner, or a charity.
Passing on a family home to direct descendants delivers a further £175,000 allowance – known as the residential nil rate band – boosting the threshold to £500,000. And as allowances can be transferred between spouses and civil partners on death the threshold for couples is effectively doubled to £1 million.
While this may sound reasonable, an estate that includes a large family home that has soared in value, savings boosted by high interest rates, and investments, can easily exceed the maximum threshold.
Despite the complexities of the system, with good planning and expert advice, it is possible to minimise the amount of IHT due by an estate.
Giving away assets during an individual’s lifetime is the simplest way to reduce liability but it is important to be aware that if someone dies within seven years of making a gift, IHT might be payable on the value of the gift after their death.
Other smaller reliefs worth considering include the annual exemption which allows individuals to gift up to £3,000 every tax year. Unused allowance can be carried over to the following tax year, but only for one year.
It is also possible to make gifts of up to £250 to as many people as desired in a tax year, without incurring any IHT. However, this can’t be combined with the annual exemption, and the amount given to any one person cannot exceed £250.
Wedding and civil partnership gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, and £5,000 for a child) can be made as long as the gift is made on or shortly before the marriage or the registration of the civil partnership. Another useful exemption is where gifts are made as part of normal expenditure out of income, so long as the gift leaves you with enough income to maintain your normal standard of living.
Other options include investing in financial products that qualify for business property relief, but it is important to consult with a trusted professional adviser first.
Finally, there is one last lesson to learn from the Roy family - investing in an extravagant mausoleum will make a statement, but it won’t necessarily qualify for additional reliefs.
