Inheritance tax (IHT) planning can
be an essential activity for many people as they reach an older age.
Ultimately, if you don’t want to leave almost half of your estate to the
government, it’s important to work out ways to leave as much as possible of the
property you own to the people you love. Inheritance tax is levied at 40%,
which can soon decimate the value of any estate.
Of course, it can be very difficult to think about death and issues that could arise, however, making a will and planning for the inheritances you leave can help to maximise the amount you leave to family, friends or organisations, and reduce the levels of tax that could be levied. The following simple tips may prove of assistance:
Will Your Estate Be Liable To Inheritance Taxes?
First off, thinking about the sums you will leave upon death will give you an understanding of whether inheritance tax will be due. At present, estates of single people valued at less than £325,000 will not be liable for IHT. Married couples can leave estates to the value of £650,000 without any IHT liabilities. This is called the Nil Rate Band and the Transferable Nil Rate Band in the case of the survivor of a married couple.
Although £325,000 or £650,000 may seem a lot of money, if you own your own property outright it’s quite possible for your estate to have a value of far more. This is particularly the case in wealthier areas of the UK, as the South East. Here in Leicester, property prices are rising quite dramatically, and many local homeowners are in possession of equity valued at £300,000 or above.
In addition, if you are leaving
your residence to your ‘lineal descendants’, then there is an additional
allowance, currently £150,000, and £300,000 in the case of married couples.
This is called the Residence Nil Rate Band and the Transferable Nil
Rate Band in the case of married couples.
Benefits Of IHT planning
The main benefit of IHT planning is that it can substantially reduce the amount of money paid to HMRC in the event of your death. If you have lots of different assets it can be a very complex activity, and that’s another reason to opt for professional help with your planning.
Many people consider IHT is an unfair tax, as all the assets owned have been paid for with cash that’s already been taxed in one way or another. What’s most important to keep in mind is that the consequences of failing to plan for inheritance taxes can be severe, particularly if loved ones have to sell your property in order to pay off the taxman.
Some Of The Ways To Cut Inheritance Tax
One of the most popular ways to reduce liabilities to inheritance tax is to actually gift cash to family members or friends prior to your death. You can also gift money tax-free to a number of organisations, such as political parties or charities. Just so long as you survive at least seven years after the date of your gifts, there will be no liability to inheritance tax on your death on these amounts.
You could also consider setting up a trust fund as a vehicle for passing on the capital you own. For example, a trust to benefit your children or grandchildren may not be liable to IHT immediately. You can set up a trust right away, but the rules are complex and there are some pitfalls to avoid if you are considering this.
This is just the tip of the iceberg and there are many more ways to minimise tax due after your death.
I am a professional Will writer based in Leicester with over 18 years’ experience in this area of law. Get in touch today for a friendly, sensitive service that offers free home visits and weekend and evening appointments to make the process as easy as possible for you or your loved one.