Planning and Tax Efficient Wills for Business Owners
If you own a business or shares in a business, then you might wish to consider planning now and writing your Will in a tax efficient manner to help minimise Inheritance Tax.
There are several ways you can beat Inheritance Tax by giving away assets, setting up a trust or changing your Will. Make sure you pay close attention to the legal details and tax consequences and if you are unsure of anything, one of Lawson West's Wills and Probate solicitors can help you out.
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died. There's normally no Inheritance Tax to pay if either; the value of the estate is less than the nil- rate band threshold of £325,000 or you leave everything to your spouse or civil partner, a charity or community amateur sports club. Being a business owner, it is often the case that the value of your estate will be higher than the threshold (£325,000) and if this is the case you will be taxed 40% on everything over this limit.
There are some simple steps that as a business owner you can take to cut your inheritance tax.
Make a gift to your partner
If you are married you can give anything you own to your spouse, so your estate won't have to pay Inheritance Tax on what the gift is worth. Your spouse must have been born in the UK otherwise there are limits on the amount you can gift. If your spouse's permanent home is outside the UK, other rules also apply.
Give to family and friends
If you give something to a friend or family member (not your spouse), so that you can no longer gain benefit from it, the value of the gift will still be included in your estate for Inheritance Tax –but only for seven years.
So, for example, if you were to gift some money to a friend and you live for a further seven years, it won't be considered when calculating your Inheritance Tax liability when you die.
During your lifetime it is possible to gift an amount up to the nil-rate band threshold of £325,000 per individual into a discretionary trust (double this amount for a married couple) and this can then be repeated every seven years.
You can also put property and investments into a trust (which you, your spouse and none of your children under 18 years can benefit from) therefore making them no longer part of your estate for Inheritance Tax purposes.
Consider including a Discretionary Trust in your Will for business assets to maximise Business Property Relief if the assets are deemed by HMRC to be eligible.
Consider donating to charity
Gifts to charity are exempt from Inheritance Tax, so this can be a good way of reducing your inheritance tax bill, while benefitting a good cause. If in your Will, you leave at least 10% of your estate to charity this will reduce the amount of tax you pay from 40% to 36%, thus reducing your IHT bill slightly more.
Tax Efficient Will writing with Lawson - West
It is important to review your will regularly, particularly if you are a business owner. Business growth and development will have a knock-on effect in to your personal life and therefore it is essential your Will remains up to date in line with any changes that occur.
If you would like to review your Will, call our Wills and Probate team on 0116 212 1000 to arrange an appointment.
Lawson West will be hosting a seminar in April on the topic of Tax Efficient Wills. The date is still to be confirmed but to register for a place please email firstname.lastname@example.org and we will reserve you a space.
Contact Lawson-West today and make your Will more tax efficient.View all