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Inheritance Tax Planning

In light of recent reports that Sir Bruce Forsyth did not pay any inheritance tax on his £17 million estate and that in Scotland in 2014/15, 1,400 estates paid inheritance tax totalling £264 million, James Hyams looks at inheritance tax and ways to mitigate any potential inheritance tax bill.
The basics
Every person is entitled to a ‘nil rate band’ of £325,000 where tax is charged at 0% i.e. there is no tax for the value of your estate under that amount. If your spouse or civil partner did not use all or any of their ‘nil rate band’ this can be added to the surviving spouses’ ‘nil rate band’ giving a surviving spouse a potential £650,000 at which no inheritance tax will be charged.
The government have also recently introduced the ‘residence nil rate band’ which by tax year 2020/21 will provide an additional £175,000 to every person at which no inheritance tax will be charged. This can also be transferred between spouses. This only applies when you are transferring a residence to a direct descendant.
Cumulatively this means that by 2020/21 spouses could have an inheritance tax allowance of £1million.  
Spouse exemption
The late, great Sir Bruce Forsyth reportedly left a £17 million fortune and didn’t pay any inheritance tax. He achieved this by transferring the whole of his estate to his wife. There are no inheritance tax implications for transfers between spouses. Sir Bruce trusted his wife to distribute his estate as he would have intended, among his children, grandchildren and great-grandchildren. She will be able to gift sums she received from his estate to his family (and anybody else) and provided that she survives for 7 years there will be no inheritance tax to pay.
Charity exemption
Another late great, George Michael, reportedly left part of his estate to charity which can mitigate the amount and rate of inheritance tax paid. If you leave 10% or more of the ‘net value’ of your estate to charity in your Will, inheritance tax will be charged at a rate of 36% rather than at 40%. To work out whether this is beneficial from an inheritance tax point of view, in your particular circumstances, professional advice should be sought.
If you wish to speak to one of our team about inheritance tax planning please contact Balfour+Manson LLP on 0131 200 1200 and ask to speak to a member of our private client team.