Smart Money Secrets - inheritance tax planning

INHERENTLY Unfair

Michael Duale, Principal of MD Wealth Management, looks at how forward planning can minimise the effects of Inheritance Tax

Inheritance Tax (IHT) is widely viewed as unfair, and even the experts agree it’s complex. But with effective and early planning you can minimise its impact on your estate. Currently, if your net estate is worth more than the standard nil-rate band of £325,000, 40p in tax is charged for every pound that exceeds the threshold; except that, broadly, if you leave your main residence to a lineal descendant, £175,000 is added to that nil-rate band. Unused elements of both allowances are transferrable on death to a surviving spouse or civil partner. This system has also been criticised for discriminating against those who do not own their own home, do not have children, are not married, or not in a civil partnership. Even if there is potential to simplify IHT exemptions, it’s probably too much to hope that the tax will be scrapped. After all, a cash-strapped Exchequer seems increasingly reliant on taxing people’s estates posthumously. In 2023/24, the UK’s Exchequer is expected to raise £6.3 billion from IHT (Office for Budget Responsibility, April 2019)

In your gift

Gifts are normally included in the net estate for IHT purposes, if they were made less than seven years before death. However, these gifts are ignored if they total less than £3,000 in any one tax year. This means that you can make gifts of up to £3,000 in total in any tax year without incurring IHT. The £3,000 can be given to one person, or it can be split between several people. If the exemption is not used in one tax year, it can be carried forward to the next year, potentially enabling a couple to remove £12,000 from their joint estate in just one tax year. That money could be used to help with the financial challenges faced by younger family members; for example, topping up a child’s pension or Junior ISA could go a long way towards providing them with an invaluable head start in life. For 2020/21, the Junior ISA allowance is £9,000, up from £4,368.

Those with sufficient surplus income may also want to take account of the ‘normal gifts out of income’ rule – which states that if you make regular gifts out of income, and in doing so don’t affect your standard of living, the gifts are exempt from IHT. However, to reduce the possibility of a disagreement with HMRC, it is wise to seek professional help from a financial adviser or accountant.

Take advice

IHT often falls on the ill-prepared and unadvised. That’s why it’s important to seek financial advice, so that all your assets are properly protected. Shockingly, fewer than a fifth of over55s have taken action to reduce their potential IHT bill.

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Michael Duale, principal of MD Wealth Management on 01379 415511, or go to www.md-wealthmanagement.co.uk

Poetry Corner

These beautiful and evocative poems are by Siobhan Guthrie, from Wymondham. A recent English Literature graduate from UEA, Siobhan is very inspired by the Norfolk landscape, and when she isn’t writing or reading she enjoys baking, gardening and spending time with her friends – albeit virtually!

Siobhan Guthrie

Over resplendent, productive farm lands, summer’s glory spreads its fingers wide. Stems dance as each golden ear waves its golden hand, where row upon row billows like cascading tides. Wheat more yellow than yellow ever was says ‘Farewell!’ They know their days are numbered. Soon they’ll cease to feel the sun’s heat because the red, rotating blades reap and roar and thunder. Each cut strand shall into mounds be compressed when August’s loving labours are laid to rest. They’ll guard: these monoliths cylindrical. Made in the Baler’s image. Identical. Until, in barns, they are stacked – one and all. As if in mourning the broad, bright sun shall fall behind a cloud. But spring will bring fine rain and pea-green saplings shall rise again. We’ll welcome in the hazy, lazy days, where we will bask and bathe in warmer rays. JOURNEY OF A NORFOLK WHEAT FIELD ‘Twas a solemn day when the mists drew in, and all around was anxious to begin. Not quite December and not quite January, but dewy crystals sparkled intently. Mists shrouded, soup-thick, over every field: when trees, grass, flowers and all to winter yields. Frost, like icing sugar, wrapped oak branches. Webs, like frozen doilies, hung from beams and arches. Yet grey, grey! All was grey: seamless from field to sky. Even the sun was cheerless and I began to wonder, why? ‘Why does no pheasant squawk and no robin sing, nor any living creature flap its dainty wings?’ Then I realised, patience must I learn within and once again wait for the new year to begin. WHEN THE MISTS DREW IN

Are you a poet from Norfolk or Suffolk? If so, we’d love to hear from you! Email a selection of poems and a bit about you to editor@ village-people.info for the chance to be featured in a future issue.

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