Inheritance Tax Planning


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We all have to pass the baton at some time to someone running behind us. We can help you do so with the minimum of fuss and the maximum of efficiency. Please read a little of the background that revolves around this potential awkward situation

Understanding Inheritance Tax

Briefly, IHT is a tax on the money and assets a person leaves behind when they die.

Property,money and assets left behind (minus any debts) is known as a person’s estate which is usually left to be shared between friends and family. This becomes known as their inheritance.

The UK government can lay claim to a chunk of this estate because of IHT laws. Not everyone  is subject to these laws however and tax is only due if a deceased’s estate is valued at more than the current IHT threshold which is currently £325,000 until 2018. Tax at 40% is then levied on the value of the estate over and above this level.

Not worried about IHT?...Think again

If you think that IHT laws are only there for the wealthy you are in for a nasty surprise

Each year more and more people become affected by IHT. £3.5 billion was collected by HM Revenue & Customs via this tax in 2013/14 which is a staggeringly high amount of money and even more so when you consider that IHT is one of the few taxes that you can legitimately avoid paying by planning ahead.

When you consider that the average house price in the UK is £250,000 but in London it is over £450,000 you can see how easy it is for large numbers of people to be affected by this charge.

To see if your estate is potentially liable for IHT do this quick and easy calculation

  • Add the value of the house or houses you may own
  • Add any savings or investments
  • Include the value of other assets from which you receive an income
  • Again, add together assets such as jewellery, artworks and maybe cars
  • and don’t forget there may be a maturing life insurance policy

Now deduct any debts

  • such as outstanding mortgage or loan
  • anything to be left for charity
  • funeral costs
  • bills and other debts

And you will come to an approximate net value of your estate.

Inheritance Tax Planning

Without IHT planning you could be leaving headaches for your loved ones


Who Pays the Bill?

IHT must be paid within 6 calendar months after the month in which death occurred. Thereafter interest will be incurred on any outstanding liability.

Tax on some assets such as land and buildings  can be deferred and paid in instalments over a ten year period if the assets have yet to be sold.

Furthermore if gifts have been made to friends or family within the past seven years of your death then there may well be IHT tax due which must be payable by the beneficiary of the gift or your estate if the beneficiary cannot pay.

Leave a will

The easiest way to prevent many of the potential headaches of IHT is to make a will even if you intend to leave your entire estate to your spouse. A spouse will accumulate a double NRB (Nil Rate Band) allowance (£650,000) which can be can be utilised upon their death.

Although gifts between spouses or those within civil partnerships are tax free there are many issues for those who live outside of those parameters.

If you die intestate (ie without having made a will) there is a possibility of your estate passing in part or even in total to the government.

In short it is crucial to make a will.

How to reduce the tax

Using Gifts

One way to lessen a potential IHT bill is to simply “gift” your assets away. However there some pitfalls you need to be aware of before you do this.

Using Trusts

Some people use trusts to help ensure that assets can be given to beneficiaries in a timely and controlled manner without incurring an IHT bill

Equity Release Options

Some people use the wealth tied up in their property to release funds and reduce any potential liability in tax. This is especially popular throughout retirement.

Business Relief

Business Property relief (BPR) can be a viable relief from IHT. It allows you to claim relief on business assets  that you own, including qualifying businesses that you hold shares in.

The good news is that with the right financial planning practically everyone with an Inheritance Tax liability should be able to reduce or even eliminate it and pass on more of their estate to loved ones.

Finding the right approach for you will depend on your personal circumstances and talking to us as qualified financial advisers will  be a great start for you to understand the various options available to you.

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