As you plan for the future, you might begin thinking about the legacy you want to leave for your family. A good estate plan could help you pass more wealth to your loved ones, making an inheritance potentially more valuable for the next generation.
According to Uswitch, 9% of first-time home buyers in 2022/23 relied on an inheritance for their deposit – an increase of 1% on the previous year. Additionally, Barclays reports that 31% of couples rely on their parents to help them fund their wedding.
As such, it may be important to you that you’re able to leave as much wealth as possible to your family, so they can reach these important life milestones without having to struggle financially. Unfortunately, wealth transfer may be more challenging in the future as your family could be more likely to pay Inheritance Tax (IHT) on your estate.
This is because the “nil-rate bands” – the amount that you can pass on before triggering an IHT charge – remain frozen. Meanwhile, the value of your estate could increase as house prices rise and you may see growth on your savings and investments.
As a result, more of your wealth could exceed the nil-rate bands, meaning that your family pays more IHT.
Fortunately, there are certain exemptions that might help you reduce the IHT your family pays. Some of these, such as the gifting exemption, are used often. Yet, there are some more obscure exemptions that you might not be taking advantage of.
Read on to learn about four unusual IHT exemptions you might not have heard of.
1. Gifts to sports clubs
Charitable gifts are one of the more common ways that people mitigate IHT. Any wealth left to charity is subtracted from the value of the estate before IHT is calculated. Additionally, if you leave at least 10% of the total value of your estate to charity, your family pays IHT at a reduced rate of 36% instead of 40%.
However, you may not realise that you could benefit from the same exemptions on gifts to a “Community Amateur Sports Club” (CASC).
To qualify as a CASC, an organisation must:
- Be open to all members of the public
- Charge no more than £31 a week for membership (clubs that charge more than £10 a week must provide support for people who cannot pay)
- Be organised on an amateur basis, meaning the club doesn’t make a profit
- Be run by “fit and proper persons”.
This exemption could allow you to support a valuable local institution while also mitigating the IHT your family pays on your estate.
2. Historical buildings, works of art, or scientific collections
Certain buildings, works of art, or scientific collections may fall outside of your estate for IHT purposes if they are considered to be of “national, historic, scientific or artistic interest”.
So, if you have a notable painting, for example, it may be exempt from IHT. These items are often quite valuable, so using this exemption could significantly reduce the size of your estate for IHT purposes.
However, items must pass a detailed assessment from a professional body such as the Arts Council or Historic England before they’re considered exempt. Additionally, your family must agree to keep the item in the UK and make it available for public viewing.
3. Relief for armed forces and emergency services personnel
The Inheritance Tax Act 1984 introduced the “armed forces exemption”. Under this rule, the entire estate is exempt from IHT if the deceased sustained an injury or contracted an illness that caused their death during active service in the armed forces.
In 2014, the government extended the exemption to include members of the emergency services – police officers, firefighters, and paramedics – who died in the line of duty.
The rules were altered again in 2020 to include NHS workers who died after contracting Covid-19 during the pandemic.
If you or any of your loved ones work in the armed forces or emergency services, you may need to be aware of these IHT exemptions.
4. Military medals and awards
If you have ancestors who served in one of the two world wars, they may have received medals and awards for their service. In fact, according to Traces of War, 115,600 medals were awarded during the first world war, and an additional 15,000 were given during the second world war.
These medals can be quite valuable and if you inherited one from your parents or grandparents, it might considerably increase the value of your estate. Indeed, Identify Medals reports that a Victoria Cross sold at auction for £1.5 million in 2017.
Fortunately, many medals and awards are exempt from IHT.
Previously, the exemption only applied to military medals that were awarded for acts of “gallantry or valour”. However, the rules have since been changed to include all awards presented by the crown, including those for non-military personnel. Certain awards from overseas are also exempt.
However, there are some notable exceptions. For example, Olympic medals are not considered exempt. Meanwhile, swords that were awarded for acts of bravery don’t count towards your estate when calculating IHT.
As such, it’s important to seek professional guidance to determine whether you and your family can benefit from this exemption or not.
Get in touch
If you want to explore different ways to mitigate IHT, we can help.
Please contact us at hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning.
