Assets that pass on free of Inheritance Tax
Inheritance Tax reliefs allow some assets to be passed on free of IHT or with a reduced bill.
Topic: Wealth Creation
Gifts
Small gifts that don’t create an Inheritance Tax liability
HM Revenue & Customs allows you to make a number of small gifts each year without creating an Inheritance Tax liability. Remember, each person has their own allowance, so the amount can be doubled if each spouse or registered civil partner uses their allowances. You can also make larger gifts, but these are known as ‘Potentially Exempt Transfers’ (PETs), and you could have to pay IHT on their value if you die within seven years of making them.
Paying Inheritance Tax
Estimating how much liability you could leave behind for your loved ones
Usually the ‘executor’ of the Will or the ‘administrator’ of the estate pays Inheritance Tax using funds from the estate.
Taking preventative action
Reducing your beneficiaries’ potential Inheritance Tax bill – or mitigating it out altogether
With careful planning and professional financial advice, it is possible to take preventative action to either reduce your beneficiaries’ potential Inheritance Tax bill or mitigate it out altogether.
Investing for income
During difficult economic times, one of the tools available to the Bank of England to stimulate the economy is interest rates. Lower interest rates mean that it is cheaper to borrow money and people have more to spend, hopefully stimulating the economy and reducing the risk of deflation.
Investment bonds
An investment bond is a single premium life insurance policy and is a potentially tax-efficient way of holding a range of investment funds in one place. They can be a good way of allowing you to invest in a mixture of investment funds that are managed by professional investment managers.
Investment trusts
Investment trusts are based upon fixed amounts of capital divided into shares. This makes them closed ended, unlike the open-ended structure of unit trusts. They can be one of the easiest and most cost-effective ways to invest in the stock market. Once the capital has been divided into shares, you can purchase the shares. When an investment trust sells shares, it is not taxed on any capital gains it has made. By contrast, private investors are subject to capital gains tax when they sell shares in their own portfolio.
Open-ended investment companies
Open-ended investment companies (OEICs) are stock market-quoted collective investment schemes. Like unit trusts and investment trusts they invest in a variety of assets to generate a return for investors.
New Individual Savings Account (NISA)
The New Individual Savings Account (NISA) rules were introduced in July 2014 designed to help and encourage people to save more for their future and give savers and investors more flexibility and a larger tax-efficient allowance than ever before. This tax efficient ‘wrapper’ can hold investments such as unit trusts, other collectives such as OEIC’s, shares and cash.
Pooled investments
If you require your money to provide the potential for capital growth or income, or a combination of both, and provided you are willing to accept an element of risk, pooled investments could just be the solution you are looking for. A pooled investment allows you to invest in a large, professionally managed portfolio of assets with many other investors. As a result of this, the risk is reduced due to the wider spread of investments in the portfolio.
