KEY GUIDE | April 2019 | Tax Planning Tips 7 TAX PLANNING TIPS | May 2023 paying down a mortgage or making some lifetime gifts to reduce the value of your estate below £2 million. The total value of the nil rate band is fixed until at least 6 April 2028. Long deceased spouses can help save IHT today Widows and widowers inherit the unused proportion of their late spouse’s or civil partner’s nil rate band for IHT – even if they died many years ago. This could mean that up to an extra £325,000 of the estate will be tax free. The residence nil rate band (see above) is also inheritable, regardless of when the first spouse died. Make a Will and tell people about it If you die with no surviving relatives and you haven’t made a Will, the intestacy rules mean that the whole of your estate will go to the government. That’s 100% tax. If you want your relatives, friends and favourite charities (see below) to benefit on your death, make a Will and ensure it can be found after you die. If you have a surviving spouse or civil partner, they may only get a portion of your estate if a Will can’t be found after your death. The residue will then be subject to IHT at 40% to the extent that it exceeds £325,000 (up to £500,000 if the residence nil rate band is available). Ask your employer to pay pension contributions to top-up your pay If you are due a pay rise and do not need the extra money day to day, you could ask your employer to pay the increase as a contribution directly into your pension scheme. The employer receives tax relief for the contribution and there are no NICs to pay – a saving for both you and your employer. You must agree in writing to adjust your salary before the revised pension contributions are paid for this arrangement to be taxeffective. Make pension contributions or charitable gifts to retain your child benefit Child benefit is clawed-back as a tax charge when the higher earner of a couple has adjusted net income over £50,000 (see page 4). You can reduce your annual adjusted net income to below this threshold by making pension contributions or charitable donations under Gift Aid. If your income is more than £50,270, meaning that the excess is liable to higher rate tax, this will also have the effect of keeping your total income within the basic rate band, and preserve your savings allowance at £1,000 rather than £500 (see page 4). Plan to sell your shares to your company on retirement, leaving your successors in control of the business The next generation of shareholders in your company may not have the cash to buy your shares when you exit the business. Instead of them having to borrow to finance the purchase, the company itself can buy your shares and cancel them, leaving the remaining shareholders controlling the company. You end up with cash and, provided a set of strict conditions are met, up to £1 million of the gain should qualify for business asset disposal relief and be taxed at no more than 10%. Estate planning – handing on your wealth Plan to maximise your inheritance tax (IHT) nil rate band on death Everyone has a nil rate band of £325,000 on which no IHT is charged. If you have children, or step-children, you can add up to £175,000 (known as the residence nil rate band) to your nil rate band by leaving your home to one or more direct descendants on your death, or to certain types of trust. Your Will needs to make it clear who should inherit the home. This extra relief is restricted to the net value of the home, after deduction of any mortgage. It is also restricted where your estate is worth over £2 million on death. It may be worth Tip You can carry forward unused pension allowances from the three previous tax years and use these to cover pension contributions greater than the current year’s annual allowance. EXAMPLE Mia’s estate is valued at £950,000 for IHT purposes. The estate includes her main residence valued at £300,000, but this is bequeathed to Mia’s brother, rather than to her two children (who inherit the remainder of the estate). Mia’s husband died five years ago, without using any of his nil rate band or residence nil rate wband. Currently, IHT of £120,000 (£300,000 at 40%) will be payable in respect of Mia’s estate on her death, but if Mia changes her will so that her children inherit her main residence, the IHT payable will be reduced to nil.
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