FINANCE
Benefits of Lifetime Gifting and Using Trusts
By RICK SCHOFIELD, PARTNER AT AZETS, rick. schofield @ azets. co. uk
Although the 2024 Autumn Budget brought no changes to the headline rate of inheritance tax( IHT), there was an announcement that agricultural and business assets with a value of more than £ 1m will no longer receive 100 % IHT relief from 6 April 2026. This will mean that any of these assets which are worth over £ 1m will only receive a 50 % relief, and an effective 20 % IHT rate.
These announced changes mean more estates will need to pay IHT, however there are ways to mitigate the impact of these changes.
In addition, there are also new rates in effect relating to capital gains tax( CGT). For any disposals made on or before 29 October 2024, higher rate taxpayers and trustees would have paid tax on any gains from the sale of residential property at a rate of 24 % and on other chargeable assets at 20 %. From 30 October 2024, all gains realised by higher rate taxpayers or trustees will now be taxed at 24 %. Lower rate taxpayers will now be taxed at 18 % on all gains; the previous rates were 18 % on the sale of a residential property and 10 % on other chargeable assets.
Here, we highlight the interaction between IHT and CGT, and steps that can be taken to pass on wealth tax efficiently during your lifetime.
Lifetime giving A lifetime gift is any cash or asset given by an individual across the course of their life.
A gift is defined as anything with value and also includes the difference in value if you intentionally sell something for less than it is worth. Lifetime giving can be a useful way of reducing your estate and ultimately your IHT liability when you die.
It should be noted that if you gift an asset but still benefit from it, it will still be included within your estate for IHT purposes, e. g. you gift a car to your child, but still drive it on a regular basis.
Another important note is that a lifetime gift of a chargeable asset such as a property or a valuable painting is a deemed disposal at market value for CGT purposes. For example, if you wanted to gift a rental property to your children, you would be treated as disposing of it at market value.
Some ways of mitigating the CGT liability include:
• Claiming gift hold-over relief.
• Using clogged losses.
• Considering using a trust to shelter the future growth in value of an asset.
Using trusts A trust is a vehicle that provides for the separation of legal and beneficial ownership. It is typically established by a written deed, but you can create a trust without even knowing that you’ ve done it to a certain extent. An example would be a nominee bank account opened on behalf of grandchildren who may not be able to legally open a bank account, so a grandparent could open it on their behalf. The grandparent therefore has legal ownership of the account, but the money in it beneficially belongs to the grandchildren.
Using life assurance It is often worth considering taking out an insurance policy for the amount of IHT that might be at stake.
Life assurance can be a cost-effective way to provide a tax-free lump sum, ensuring that funds are available to pay the IHT liability which can be due within six months of the end of the month in which death occurs.
We are here to help If you have any questions or would like further information regarding lifetime gifting and trusts, please get in touch.
Local Offices: Ashford: 01233 629 255 Canterbury: 01227 454 861 Maidstone: 01622 690 666 Orpington: 01689 827 505 Sandwich: 01304 249 997
www. azets. co. uk
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