Inheritance tax (IHT) is one of the most significant financial challenges facing families in Dorset and across the UK. At HGW Solicitors, our private client team helps individuals and families structure their estates in ways that are both legally sound and tax-efficient. We advise clients from our offices in Wimborne, Broadstone, Christchurch, Verwood and Ferndown.
What is inheritance tax and when does it apply?
Inheritance tax is charged at 40% on the value of an estate above the nil-rate band, which currently stands at £325,000 per person. A married couple or civil partners can combine their allowances, meaning up to £650,000 can pass free of IHT
There is also the residence nil-rate band (RNRB) of up to £175,000 per person available where a main residence is passed to direct descendants such as children or grandchildren. This means a couple may be able to pass up to £1 million to their children without an IHT liability, subject to conditions.
IHT is payable on:
- The value of all assets in your estate at the date of death, including property, investments, savings and personal possessions
- Gifts made within seven years of death (the seven-year rule)
- Certain trusts and lifetime transfers above the annual exemption
Key allowances and reliefs
The UK IHT system includes several important reliefs that when used correctly can substantially reduce or eliminate a tax liability:
You can give away up to £3,000 per tax year free of IHT. Unused allowance from the previous year can be carried forward, allowing couples to give up to £12,000 in a single year if the previous year’s allowance was unused.
Larger gifts become free of IHT if you survive for seven years after making them. Gifts made between three and seven years before death benefit from taper relief, reducing the tax charged on a sliding scale.
Qualifying business assets, including shares in unlisted companies and interests in trading partnerships, may attract 50% or 100% relief from IHT. This is a highly valuable relief for business owners and is worth reviewing as part of any estate plan.
Landowners and farmers in Dorset’s rural areas may qualify for Agricultural Property Relief on qualifying agricultural property. APR can reduce the taxable value by 50% or 100% and is a key consideration for rural estates.
Assets passing between spouses or civil partners are generally exempt from IHT, regardless of value. This exemption does not apply to cohabiting couples a common misconception that can lead to significant, avoidable tax liabilities.
Common IHT planning strategies
There is no single solution to inheritance tax planning effective strategies depend on the size and nature of your estate, your family circumstances and your wishes. Approaches our solicitors commonly advise on include:
- Reviewing and updating your Will to make full use of available allowances
- Using trusts to pass assets outside the estate while retaining a degree of control
- Making regular gifts from surplus income, which qualify as immediately exempt
- Arranging life insurance written in trust to cover a predicted IHT liability
- Restructuring business or agricultural assets to maximise available reliefs
- Transferring assets to reduce the overall estate value over time
Why act early?
Inheritance tax planning works best when there is time on your side. Many of the most effective strategies, such as making potentially exempt transfers or restructuring business assets, require a number of years to take full effect. Waiting until a health event forces the issue often means fewer options and higher tax bills.
We recommend that anyone whose estate may exceed £325,000 or £650,000 for couples takes specialist advice. Given property values across Dorset, that applies to many more families than people realise.
Working with Nicola Lowe and our private client team
Our Inheritance Tax Planning service is led by Nicola Lowe, Managing Partner and Head of our Private Client department. Nicola has extensive experience advising clients on Wills, Probate, Lasting Powers of Attorney and estate planning across all five of our Dorset offices .