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If you find that time is no longer on your side, what you pass onto future generations is just as imperative as whether they become subject to inheritance tax (IHT) liabilities upon your passing. Though a decrease from 2016 - 2017 figures, 3.9% of deaths in the U.K. resulted in IHT liabilities, which makes it increasingly laborious to pass on wealth. 

What is an IHT Nil Rate?

In 2010 - 2011, inheritance tax has adhered to a nil rate band of £325,000[1]. After the introduction of the Residential Nil Rate band in 2017, those with an estate subject to IHT must now pay an additional £175,000 per person. 

If the inheritance remains unused, the nil rate band goes to a surviving spouse or civil partner. However, the residential nil rate allowance on heritage reduces if the value of the estate surpasses £2 million. Should the equity in the property be less than £2 million, you can easily hand on its value. 

Can You Avoid a Potential Inheritance Tax Liability?

If you want to escape any IHT liabilities, there are several methods of skirting around. Firstly, you can gift your inheritance funds while still alive in the hopes that you survive the seven requisite years before the amount becomes exempt. However, local authorities may crack down on this option should you be going immediately into hospice care after gifting your funds. Some might assume you’re refusing to pass on the inheritance costs to use them for your benefit. 

AIM and Business Property Reliefs

As such, investors have been looking carefully into the Alternative Investment Market (AIM) to receive Business Property Relief. Under AIM regulations, investors must have held their assets for at least two years and until they pass away. Then, they become free of any inheritance tax. 

Typically, investors will funnel these funds into smaller U.K. companies that are either already well-established or considered start-ups. These businesses can also range different sectors, with managers attached to each fund to oversee changes. Should a new owner take over a specific company, for instance, the investor stands to lose the Business Property Relief. 

Thus, AIM investments are prone to risks and liabilities. Some investors choose to secure more significant levels of stability by establishing their own companies. However, returns are usually lower. 

Should an investor not survive the 2-year requisite period, a provider might offer coverage for the period. An age cap will vary across different providers. These consequences leave investors with two options: retain the investment in their name or place them in a trust. 

Conclusion

Unfortunately for future investors, how investments performed in the past isn’t a reliable indicator of how they’re going to perform in the future. The best way to select an appropriate tax product is to seek wealth management in Cardiff. 

Whatever your life stage, it’s imperative that you receive the right advice regarding pension plans and passing on an inheritance. Whether you’re a business or individual, our financial advisers in Cardiff at Harry Robinson Wealth Management can prepare you for every retirement opportunity.

References

1. Crowe U.K. LLP. https://www.crowe.com/uk/croweuk/news/inheritance-tax-statistics. Accessed on September 10, 2020.