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Is your will tax efficient?

In recent years the government has made a number of changes to Inheritance Tax.

The current threshold (Nil Rate Band) for Inheritance Tax is £325,000 any transfers above this are taxed at 40%.  Transfers between spouses and civil partners are exempt.  In other words, when an individual dies anything they leave to their spouse or civil partner is not taxed regardless of the amount.  Since October 2007 if an individual leaves all or part of their estate to a spouse or civil partner and does not use all of their Nil Rate Band the unused portion can be transferred to be utilised on the second death.

In 2012 the rules were changed so that if, on death, an individual left at least 10% of their estate to charity the applicable rate of Inheritance Tax payable by the estate is reduced to 36%.

For deaths after April 2017 the government introduced the Residence Nil Rate Band. The effect of this is that if an individual leaves their residence to a direct descendant another exemption from Inheritance Tax, £100,000 in 2016/2017 increasing to £175,000 in 2020/2021, can be claimed in addition to the existing Nil Rate Band.  Again, if this exemption is not used on the first death it can be transferred to the surviving civil partner or spouse on the second death.

The effect of these changes is that by 2020 a couple could pass £1,000,000 from their estates free of Inheritance Tax.

However, there are exceptions to the circumstances in which these exemptions can be claimed and also transferred to the surviving spouse or civil partner. It is important that your wills are drafted to minimise the amount of Inheritance Tax payable by your chosen beneficiaries.

At Atherton Godfrey we can advise on how to arrange your affairs and draft appropriate wills to ensure your wishes are fulfilled.

Author: Katy Burgin

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