IHT planning is not just about tax
Estate planning remains as essential as ever despite last year’s announcement that a surviving spouse or civil partner can inherit their deceased spouse’s or partner’s inheritance tax (IHT) nil rate band.
That change is certainly welcome, but couples may still be able to save more IHT by passing on assets at the time of the first death. While lifetime gifts continue to be important, there are also vital non-tax-related issues to consider. In fact, the starting point of any estate planning is not tax, but to consider your family circumstances and what you wish to achieve. What is best for you will depend on your financial position and that of your potential heirs, and also what might happen during your lifetime and during theirs.
For example, many people want to provide for a surviving spouse while making sure their children inherit eventually. Passing all assets to a spouse or partner on the first death will now not necessarily waste a nil rate band, but the family’s wealth may never reach the intended beneficiaries.
Despite the tax changes in March 2006 that ended the favourable tax treatment of some types of trust, a trust is still a useful tool for ensuring the required succession and can help protect assets against unforeseen risks, such as a spendthrift heir, divorce and bankruptcy.
Passing on assets on the first death can also save IHT. The value of the assets may increase faster than the value of the nil rate band. And remarriage would limit the amount of nil rate band that can be inherited.
Above all, flexibility is important. Circumstances change, as do tax rules. We can help you to formulate your wishes and make sure that your estate planning will achieve them in the most tax-efficient way.