Finance & Tax Helpful Tips

Don’t struggle with Inheritance Tax

Tax Returns Deadline 2016
Lee Sharpe
Written by Lee Sharpe

Property investors can struggle with Inheritance Tax: unlike most businesses, letting portfolios are afforded no special reliefs from Inheritance Tax. It can be difficult to balance the need to move capital wealth to future generations, against the need for income in retirement.

With that in mind, some Inheritance Tax tips:

  1. Make good use of the (relatively) new doubling-up of the Nil Rate Band between spouses / civil partners, where the surviving spouse acquires an appropriate proportion of any unused Nil Rate Band. It is possible to leave the surviving spouse unable to make full use of his or her Nil Rate Band, so some is wasted. Basic planning should prevent this.
  2. The same applies to the new Residence Nil Rate Band, which is also available for “doubling up” between spouses. Note that, even if you “down-size” to a cheaper property later on, so long as you ensure that you satisfy the rules for having resided in a property worth at least £350,000 after 8 July 2015, then you may well be able to “bank” the full extent of the RNRB available to a married couple. You do need to make sure that sufficient value from your Estate will pass to “direct” descendants. Unlike the standard Nil Rate Band, you start to lose the new Residence Nil Rate Band if your Estate has a net value in excess of £2million (see Tip 4)
  3. Most people would expect me to mention the Annual gifts exemption of up to £3,000 per annum, that can roll forwards and “double up”, for the following year. I am not going to do that. When the Inheritance Tax Act was introduced in 1984, £3,000 was a reasonable amount of money. More than 30 years later, it has very limited use. I am instead going to recommend – strongly – that you explore the huge potential of “gifts out of income”, for which there is no upper limit, basically provided it is being paid out of your disposable income for the year.
  4. Simply put, the lower the net value of your Estate, the less IHT will be payable. Therefore, make full use of lifetime giving, such as:
    1. PETs – gifts of capital, that generally escape IHT provided you survive the gift by 7 years.
    2. Gifts out of income – so good, they’re worth mentioning twice.
    3. To Trusts – specialised, but useful in some cases.
  5. It is possible to give away some of your capital wealth, including investment property, but to continue to keep the income arising therefrom, in some cases. Such arrangements do not always fall foul of the Settlements (or other) anti-avoidance legislation.
  6. Make a Will. The best-laid tax-efficient planning can fall at the first hurdle if your Will does not set out how you want to dispose of your assets, etc. If you have one already, make sure it is up to date!

The RLA offers a unique Inheritance Tax seminar with Lee Sharpe, and there are special discounts for RLA members.

For more information:

About the author

Lee Sharpe

Lee Sharpe

Lee Sharpe is a Chartered Tax Adviser with nearly 20 years’ experience of advising property investors and family businesses on tax matters.


  • Gifts out of income – and straight-forward gifts of capital under the 7year rule that eventually frees the gift from IHT – are simple and generally understood.

    It is the area of Trusts, to mitigate IHT, where it is difficult to obtain clear and definitive advice – as there is a strong perception that HMRC will apply retrospective rulings and penalties to Trusts.

    I would attend a seminar by Mr Sharpe if he focused solely on Trusts to mitigate IHT.

    Alternatively can Mr Sharpe point to relevant reading matter? Or to a way to consult with him one-on-one?

    Thank you.

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