With inheritance tax (IHT) never far from the headlines, it came even more to the forefront earlier this year with the news that Bruce Forsyth had left his £17m fortune to his wife “to avoid inheritance tax”. Various media outlets reported how Forsythe had exploited a legal loophole in order to avoid the taxman, but did he really?
The reality is that what amounts to lazy journalism sensationalised what was actually a very straightforward estate planning strategy. In a nutshell, an individual can leave their entire estate, regardless of value, to their spouse or civil partner and there is no IHT to pay. This is known as “spousal exemption” and there is no upper limit.
On top of the standard £325,000 nil rate band allowance available to all, an additional allowance was launched earlier this year; the residential nil rate band. This applies where a house is being left to a person’s direct descendants and equates to an additional £100,000 which can be claimed against the value of the house in order to keep it out of IHT calculations. In the same way a deceased’s spouse or civil partner’s unused nil rate band may be claimed against the estate of the second spouse or civil partner upon their death, so can the residential nil rate band also be claimed, giving an overall exemption, by tax year 2020/21 of up to £1 million; £325,000 + £325,000 + £175,000 + £175,000 = £1m
So, whilst the Forsyth family has avoided IHT for now, his wife will have to be creative during her lifetime in order to mitigate the liability her estate faces on her death if she doesn’t act. Again, lazy journalism states she is limited to giving away up to £650,000 free of IHT, but the reality is she can gift away as much of her inheritance as she wishes during the course of her lifetime. This is not thanks to any shady underhanded dealings, but rather taking advantage of the 7-year gift rule available to the common man and the rich and famous alike; give away as much as you like, survive seven years and the asset no longer forms part of your estate. Given her age, it is not unlikely that Bruce Forsyth’s widow will survive long enough for any assets she gifts away to pass to the beneficiaries free of IHT…a real Brucie bonus!
If you would like personalised advice concerning IHT please do not hesitate to contact us so that one of our consultants can visit you to discuss your circumstances. Please telephone 01732 868190 or click here to book an appointment.