Complete Trust Tax Advice and Planning
Inheritance Tax Scotland
Churchill Tax Consultants are one of the UK’s leading Inheritance Tax Specialists and Consultants. Our team of inheritance tax specialists cover the following areas:
- Trust tax advice and planning
- Family home
- Investment properties
- Companies, business and shares
- Offshore assets
- Domicile and residence
Inheritance Tax Nil Rate Band
The current nil rate band is £325,000 per person. Any unused nil rate band can be transferred to the surviving spouse and be utilized at the time of the second death.
There is an additional nil rate band of £175k per person in relation to the main residence. The relief has been phased in from April 2017 at £100k and then will gradually increase by £25k each year until it reaches £175k in April 2020.
There is a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. The withdrawal rate is set at £1 for every £2 over this threshold. Furthermore, the main residence nil-rate band is transferable to the surviving spouse and to be utilized in full at the second death.
You can make tax free gifts of cash up to £3,000 per annum to your children. You can carry any unused annual exemption forward to the next year – but only for one year. It is not possible to make multiple gifts of £3,000 in any one year. You can give a gift of up to £5000 to your children on their marriage.
In addition you can make small gifts to the value of £250 to each of your children. Any gifts in excess of these will become potentially exempt transfers and will remain part of your estate for a period of seven years.
Cash gifts made to children
Any cash gifts made to your children in the last seven years will be considered as Potentially Exempt Transfers (PET). The value of these PETs are reduced over time by Taper Relief (see below) and will fall out of your estate after seven years from the date of gift.
If however the cash gift was made as regular gifts out of income (see below), then this will be fully exempt and the seven year rule will not apply.
Gifts to Charities or Political Parties
Gifts to UK Charities or Political Parties are exempt from inheritance tax. There are some conditions for gifts to Political Parties to qualify for the exemption.
Reduced inheritance tax rate of 36%
If you leave 10% of your net estate to a UK Charity, your inheritance tax rate will be reduced to 36%. This could be a useful way to utilize your chargeable estate at death. There is a sliding scale for the overall cost vs benefit depending on the size of the estate.
It may be useful to mention this in your will and leave for your executors to determine whether this would benefit your estate.
Regular Gifts Out of Income
The relevant legislation is found in section 21 of the Inheritance Tax Act 1984.
You can make gifts of any value out of your regular income. These gifts are exempt and for Inheritance tax purposes it is irrelevant whether or not you survive for seven years.
For the exemption to apply, it must be shown that a transfer of value/ gift meets three conditions below:
- It formed part of your normal expenditure
- It was made out of income (taking one year with another), and
- It left you with enough income to maintain your normal standard of living
The relevant legislation is found in section 7(4) Inheritance Tax Act 1984.
Taper relief is available should your death occur prior to the seven years of you making the transfers/ gifts (that are PETs) to your children. Taper relief is available on PETs if you survive more than 3 years after the date of the transfers/ gifts and gets bigger the further you get closer to seven years. The minimum relief is 20% and the maximum is 80% of the inheritance tax. The table below summarizes how the taper relief works:
|Years between transfer/ gift and death||Percentage of full tax rate applied|
|3 to 4||80|
|4 to 5||60|
|5 to 6||40|
|6 to 7||20|
If you would like to get a free consultation or inheritance tax advice, call us today on 0333 577 0829 to make an appointment.
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