Insights

Last month, we held the first of RJP’s inheritance tax (IHT) surgeries and are delighted they were such a huge success. During those meetings, we met with local taxpayers from all walks of life and it became apparent that most people have two assets they are concerned about; their business and their family home.  The meetings also highlighted that most people felt there was little or nothing they could do to minimise the inheritance tax liability that would become due on their family home. That’s a misconception we want to change.

Plan ahead to use Business Property Relief

In the case of those owning a business and assets connected with that business, the inheritance tax is currently mitigated because of the ability to benefit from business property relief.  However, given the current state of the economy and the possibility of taxes on inheritance increasing in the future, will this relief still be available when you really need to use it?

If you are relying on business property relief being available to ensure your business does not become liable to IHT, you should review your accounts to ensure there are no aspects which will enable HMRC to deny the relief. For example, if your business holds a large amount of cash, HMRC will look to deny the relief on the basis that there is an investment element to the business.

In this situation, there is planning which you can undertake now to protect against the relief being denied, to test the availability of the relief, and indeed to utilise the relief now.

The next aspect to consider is that once the business has been sold, the resulting cash will of course not be covered by business property relief. Therefore when approaching retirement age and thinking about IHT planning, many clients, once they have sold their business, distribute cash amongst their relatives, taking advantage of the 7 year rule whereby the cash then falls completely outside their estate once they survive 7 years following the date of the gift.  Relying on this strategy for your future IHT planning does however also rely on this relief being available when you need it.  Therefore it is worth considering what lifetime planning you can do to use reliefs that are available now, whilst they remain available.

Tax planning and the family home

The main asset which most concerns clients who wish to protect their estate against IHT however is the family home. In fact this is such a common concern, we ran a dedicated article on it during the summer.  In this, we outlined a variety of different options to consider. Of course the family home is just that, and as a result it’s difficult to undertake lifetime planning.  However there are a number of options to consider which do not involve the uncertainty of giving away the roof over your head or selling up and distributing all the proceeds as cash.

Come and talk to us if you would like to understand what is possible based on your individual circumstances.  In February and March, after the annual tax return season has finished, RJP will be running another series of IHT surgeries and we’ll be providing more information on these shortly. Don’t hesitate to get in touch with any questions in the meantime.

Contact Lesley Stalker if you have questions about inheritance tax on las@rjp.co.uk.