If you own business or agricultural property you may be able to use this to make significant inheritance tax savings on your death. We can help you ensure that you structure your Wills to ensure that you crystallise the relief available and arrange the estate of someone who has died to maximise the savings. A brief guide to inheritance tax Inheritance tax is essentially a tax on the transfer of assets. This will often be encountered when, following a death, assets are passed to the beneficiaries under a Will or intestacy. For inheritance tax purposes, everyone has a 'nil rate band' of £325,000. However, any gifts made in the seven years before your death will eat into the nil rate band available on your death. Assets above the nil rate band will then be taxed at 40%. However, any items passing to a spouse will be exempt and so will not use up the nil rate band. Where the nil rate band has not been used on the death of the first of a married couple to die (perhaps because they left their estate to a surviving spouse), the unused amount of the 'nil rate band' can be transferred to the surviving spouse. The surviving spouse could therefore leave up to £650,000 free of tax. Business property and agricultural property relief Qualifying business and agricultural property will receive relief from inheritance tax at either 50% or 100%. Relief may be available for assets such as farms, shares in private trading companies and interests in trading partnerships, as well as business premises and equipment. Those with business and agricultural property assets which qualify for relief may wish to consider leaving this type of asset to a discretionary trust rather than a surviving spouse (who would not pay inheritance tax in any event). The use of such arrangements on the first death can provide flexibility and considerable opportunities to mitigate inheritance tax. Further maximising the savings If, in your Will, you were to leave your 'relievable' business or agricultural property to a discretionary trust on the first death the trustees could enable the survivor to make additional savings by transferring these relievable assets to the surviving spouse. In this way your spouse will be able to convert their estate to hold more 'relievable assets' (such as shares in a private trading company, farmland etc) by swapping these for non relievable assets (including cash) which are passed to the trust. Importantly these arrangements would not prejudice the survivor's financial position. If there were no tax advantage to these arrangements at the time, the trust could be very simply unwound. An Example Say Mr and Mrs Smith each own half of a catering company which is worth £1 million. They also have other assets of £500,000 each. If they make straightforward Wills leaving everything to the survivor on the first death and by the time of the second death the company has not been sold, the shares of the company should, it is hoped, have qualified for relief. The remaining £1,000,000 of the assets would be taxable leading to a tax liability of £140,000. If, for any reason, the shares did not qualify for relief at the time of the second death (for example because the survivor had sold the company or the relief had been withdrawn) the tax would increase to £540,000. By placing the shares in the company into an appropriate trust on the first death, at a time when the relief is available, the opportunity could be created either, in this example, to extinguish the tax liability altogether on the second death or substantially to mitigate it.
If you would like more information on this topic or other inheritance tax planning measures please speak with your usual contact at Wansbroughs. | 
