Once it is clear that a person is terminally ill, there is scope for carrying out some deathbed estate planning, if they wish to do so. This could include, for example:
- Reducing their estate to the £2M threshold with some last-minute gifts, to enable their estate to benefit from the ‘residential nil rate band’ of £175,000 per person. If a person dies owning assets worth more than £2M currently, their inheritance tax free residential nil rate band will be tapered away or even reduced to nil. Subject to any capital gains tax consequences, the person could consider making a gift to reduce his or her estate to below £2M to retain the residential nil rate band. Although these gifts will not be effective for inheritance tax purposes if the person does not survive them by 7 years, they will successfully reduce the value of the estate sufficiently to make it eligible for the residential nil rate band, and possibly also that belonging to their late spouse.
- Unmarried partners may wish to marry or form a civil partnership, so that they can pass assets from one to the other inheritance tax free, on death. This delays an inheritance tax hit until the second death, when their joint estate will benefit from both spouses’/civil partners’ transferable inheritance tax free allowances.
- Using up any unused lifetime exemptions much as the £3,000 annual exemption and small gifts exemption.
- A terminally ill person with young children can make substantial gifts for their children’s ‘maintenance, education or training’ free of inheritance tax, under s.11 Inheritance Tax Act 1984.
- If the dying person’s spouse or civil partner owns assets which are pregnant with gains, those assets could be transferred to the dying person free of capital gains tax, and then left back to their spouse or civil partner in their Will. This would wipe out the latent capital gain.
- If there is a realistic prospect of avoiding the need to obtain probate, converting bank accounts in the person’s sole name into joint accounts and transferring property held in their sole name into joint names held as joint tenants would assist with this. It will also help to fund any inheritance tax liability.
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