Why Inheritance Tax planning is a must
Inheritance Tax is widely seen as a burden that causes a great deal of frustration for those affected by it. Few people approve of the idea of the government taking money and assets that they have left behind for their loved ones. Fortunately, there are steps you can take before you pass away to ensure your wealth, or at least a substantial chunk of it, goes to your intended recipients rather than the state.
The amount of IHT you pay depends on the value of your estate when you die as well as assets you have given away in the seven years leading to your death, though this period can be longer in some circumstances.
When you die, the executor named in your Will finds out how much is left in your estate after debts and funeral expenses are paid off. Should your estate be worth more than the threshold, which currently stands at £325,000, IHT will need to paid at 40% on anything above it. However, the new Transferable Main Residence Allowance (TMRA) means £425,000 can be passed on without tax being payable.
You will normally be able to pass on your entire estate to your surviving spouse tax-free when you die. If there is no money in your estate when you pass away, assets may need to be sold so the tax can be paid. When the tax is paid, the executor can get a Grant of Probate so your assets can be accessed and distributed.
Start planning now
If you are worried about the IHT burden, you can start planning now to reduce the amount that needs to be handed to the state. You can give away money, possessions and property as gifts to loved ones as long as you are still alive for at least seven years after the transaction. The amount of tax may be reduced if you survive for at least three years or give away over the nil-rate allowance. You can give up to £3000 each year across various recipients without paying tax, and can carry this over to the following year if you wish, enabling you to give £6,000 as a tax-free gift. You can give up to £250 a year to individual recipients tax-free. You can also give up to £5000 when your children marry, £2500 when grandchildren or great-grandchildren get married and £1000 to anyone as a wedding gift.
You can also donate to charities to avoid IHT. The Legacy10 scheme reduces the IHT burden to 36% if you give 10% of your wealth to charity. A family trust can be started with just £500 and can also help you reduce the burden, whilst keeping assets in your family if businesses or relationships come to an end. This enables you to gift money to loved ones without you needing to hand them over immediately.
Get in touch
There are many other ways to reduce IHT, including investing in insurance, giving away your home, specialist investments, buying land and purchasing businesses. At Nicholls Brimble Bhol, we can assist you if you wish to reduce the amount of IHT payable after you die. Contact us today on 0121 429 8041, via info@nbblaw.co.uk or through the website.