Inheritance Tax Planning
It is likely that you will want your loved ones to receive the maximum benefit from your estate, which is why effective Inheritance Tax planning is essential.
Inheritance Tax (IHT) is charged on the combined value of your property and assets when you die, if they exceed certain limits. Each person has a ‘Nil-Rate Band’ which is currently set at £325,000. Any assets exceeding this amount are taxed at 40%. Transfers between spouses and civil partners are exempt. A spouse or civil partner will be given any unused allowance.
In all likelihood, the Nil-Rate Band will not keep pace with the increase in house prices and many more people will be subject to IHT in the future.
Proper Inheritance Tax planning can ensure that the amount of IHT you pay on death is reduced significantly or avoided altogether. Our Wills, Trusts and Probate team can help you by:
- Preparing tax-efficient Wills
- Advising on the availability of exemptions and reliefs during your lifetime and on death to reduce IHT liability
- Preparing Pilot Trusts to deal with lump sum pension payments
- Making post-death variations to adjust the distribution of assets, saving tax for the next generation
Inheritance Tax FAQs
What is Inheritance Tax?
Inheritance Tax (IHT) is a tax on the estate of someone who has passed away, including their home, savings, investments and any other possessions and money.
How much is Inheritance Tax?
This will depend on the size of your estate and any exemptions or other tax-efficient planning you put in place before your death.
IHT is not paid on the full value of your estate as the first £325,000 is tax-free. This allowance is referred to as the Nil-Rate Band. If any assets are left to your spouse, civil partner or an exempt beneficiary such as a charity, then they will be exempt from paying IHT.
There is also an additional tax-free allowance set at £175,000 for a residence of your choosing (Residence nil rate band) if you elect to pass it to a direct descendent. Like IHT any unused element can be passed onto a spouse or civil partner. The amount of this allowance is also capped at the equity in the property. If the person's estate is worth more than £2m this allowance will be reduced by £1 for every £2 the estate is worth over the £2m threshold.
Anything above the Nil-Rate Band and Residential nil rate band will be charged the standard IHT rate of 40%. This may be lowered to 36% if certain gifts are made to registered charities (No less than 10% of your estate).
Can you use life insurance to help pay Inheritance Tax?
Taking out a life insurance policy is one way of helping your loved ones to pay some or all of an IHT bill.
If your life insurance policy is written ‘in trust’, the money will be paid out to your beneficiaries of the trust and not to your legal estate.
In the event of your death, the policy will pay out to the trust, which will then be used to pay all or part of your IHT bill.
Are gifts exempt from inheritance tax?
Any gift you make could be considered to be part of your estate for IHT purposes, but this will depend on a number of factors, including the type of gift, the value of the gift, the recipient of the gift and when the gift was made.
There are a number of exemptions available with regards to the giving of gifts. In summary these are a few annual and wedding exemptions.
Will my holiday home be liable to Inheritance Tax?
While the Nil-Rate Band does provide an expanded threshold for your chosen residence, there is no additional available relief if you own multiple residential properties. You are able to choose the residence to which you wish the allowance to apply to.
By taking expert advice now, you will be able to provide the maximum benefit to your loved ones.
Or to request a call back, feel free to complete our online enquiry form.