Deathbed Inheritance Tax Planning

Deathbed inheritance tax planning is not for everybody, but for those who find it palatable, there is some comfort in knowing that you have done everything possible to ensure that your loved ones are comfortably provided for after you have gone, even if the planning is done at the very last minute. Below I describe a deathbed inheritance tax planning technique which can be used to salvage the inheritance tax free ‘residential nil rate band’ of £175,000 per person.

Each person is entitled to an inheritance tax free nil rate band of £325,000 on death, as well as a residential nil rate band of a further £175,000, which broadly speaking is available when your house passes to your children. However, for individuals with estates worth between £2 M and £2.7 M, the residential nil rate band is gradually tapered away and lost, and the taper means that there is an effective inheritance tax rate of 60% on that part of the estate. Property prices being what they are in the south-east of England, many people unfortunately lose the benefit of the residential nil rate band when their house passes to their children.

If you have been advised that you are terminally ill, it is possible to do some deathbed inheritance tax planning to regain the benefit of the residential nil rate band by making last minute gifts. Although the gifts would not be effective for inheritance tax planning purposes in the usual way unless the donor survives them by seven years, if you reduce your estate to £2M with last minute gifts, you can regain your eligibility for the residential nil rate band. This technique can be useful on either the first or the second death for a married couple, and also on the death of a single person. It’s important to bear in mind any potential capital gains tax issues that may arise.

Rebecca D'Arcy  - deathbed inheritance tax planning
Rebecca D’Arcy, Will Writer

Chiltern Wills Beaconsfield LLP is a friendly, professional will writing business based in Beaconsfield and run by former London solicitor, Rebecca D’Arcy. To discuss making your Will or powers of attorney, call us on 01494 708688 or make a free online enquiry.

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