Claiming the Same Tax Allowance Again. And Again. And Again.

The inheritance tax (IHT) nil rate band has been frozen at £325,000 since 2009, and is due to remain frozen till at least 2026, despite major increases in property values over the years. 

Less well known is that an individual can utilise the IHT nil rate band on multiple occasions over a lifetime, and not just once at death. This is done by gifting £325,000 into a new trust every 7 years. A gift into trust is immediately chargeable to IHT, but with a deduction available for the settlor’s (i.e. donors) nil rate band. The gift reduces (or eliminates) the settlor’s nil rate band for subsequent gifts (or on death), but only for subsequent transfers within 7 years. 

After 7 years, the settlor regains a full nil rate band. Trust planning is a complex subject requiring bespoke advice, but can be particularly tax-efficient where a number of the following factors are present: 

• The gift compromises land or buildings

• The property is standing at a substantial capital gain and business holdover relief is unavailable

• The value of the property is wholly or partially exposed to IHT; perhaps because it is a non-agricultural let (e.g. former farm cottage) or because it is not used in the owners trade and the market value exceeds the agricultural value (e.g. old stone barns)

• The value of the property is currently sheltered from IHT but is expected to become exposed in future (e.g. due to a cessation of business use)

• The value of the property is expected to increase substantially in future (e.g. due to planning potential)

• The settlor has grandchildren and would like to contribute to their school fees

• The settlor and their spouse are content to forego any personal income, capital receipt or other benefit 

If you would like advice or your IHT position and possible planning measures, please speak to us.