HMRC has overhauled the inheritance tax reporting forms attached to the IHT100 with a new range of forms for documenting different IHT events. These are a useful reminder of IHT reporting events, which can sometimes be overlooked.
The new forms are to be used as follows:
- IHT100a form – used for a gift when inheritance tax is payable immediately;
- IHT100b form – two versions of this form exist for different situations:
– beneficiary interest in possession in a trust ends in the taxpayer’s lifetime;
– beneficiary interest in possession in a trust that terminates on death. - IHT100c for assets in a trust that are no longer ‘relevant property’;
- IHT100d for assets in a trust that are ‘relevant property’ before each 10-year anniversary;
- IHT100e for charges to a special trust;
- IHT100f for the ending of a conditional exemption;
- IHT100h form – used for assets previously held in an 18 to 25 trust.
The new IHT forms came into effect from 12 August 2024 however it is possible to use old versions of the IH100 forms and schedules until 31 December 2024.
Options to manage inheritance tax
If you are concerned about the impact of IHT, the sooner you start planning the better.
Below are some of the ways you can plan ahead to reduce the IHT payable on your death:
Make a will
Having a will ensures your assets will be distributed according to your wishes. Each individual is able to pass on £325,000 tax free; for married couples and civil partners, this is £650,000 in total. Depending on the size of the estate, a further £175,000 each can be passed on tax free to descendants in the form of the family home. The result is that total reliefs of £1m are available to a couple.
Give away small amounts
Anyone can make gifts of up to £3,000 each tax year and these will fall outside their estate immediately. This gift allowance of £3,000 can be carried forward for one tax year if unused. Annual gifts of up to £250 per annum to any one person will also fall outside the estate immediately. Additional gifts can be made for special occasions – marriages for example – at a rate of £5,000 to a child or £2,500 to a grandchild.
Gifts out of income
If you have surplus income, consider making regular gifts out of that income. This is often overlooked and can result in a substantial reduction in an estate over a period of time. Gifts out of surplus income fall outside the estate immediately; it is however important to keep detailed records of income and expenditure to demonstrate the excess income available, and to ensure the gifts made are a regular commitment .
Make lifetime gifts
Large one-off gifts are termed potentially exempt transfers (PETs) and currently do not attract an immediate inheritance tax charge. Provided the donor survives 7 years after the date of the gift, it falls entirely outside their estate. Consider making large gifts every 7 years to use the £325,000 lifetime exemption repeatedly. On death within 7 years of a gift, the value of that gift falls back within the donor’s estate and to the extent that it exceeds £325,000 (or £650,000 on a second death) it will attract inheritance tax which is the liability of the done (reportable on IHT100). Tapering relief attaches to this liability for gifts made between 3 and 7 years before death.
Maximise business assets
Qualifying business assets such as shares in your own trading company, AIM listed shares, and EIS or SEIS approved investments can attract business property relief which reduces the inheritance tax liability. Such assets require only a 2 year holding period before the relief can apply at the rate of either 50% or 100%, depending on the asset and the holding.
The Labour government is expected to make some significant changes to inheritance tax (IHT) and available reliefs in the forthcoming Autumn 2024 Budget on 30 October 2024. This could have significant implications for both business owners and private individuals with substantial estates.
If you would like to discuss options for IHT planning, please contact us via partners@rjp.co.uk.