Inheritance Tax Planning
Inheritance Tax (IHT) is a tax which is paid on the things of value you leave behind when you die. This is called your estate. A person's estate includes everything owned in their name; the share of anything owned jointly; gifts from which they keep back some benefit, such as a home given to a son or daughter but still lived in by the parent; assets held in some trusts from which they receive an income.
Against this total value is set everything that the deceased person owed, such as, any outstanding mortgages or loans, unpaid bills, and costs incurred during their lifetime for which bills have not been received, as well as funeral expenses.
The tax threshold (or nil rate band)
You only have to begin paying IHT if the total value of the assets exceed the nil rate band. The current threshold or nil rate band is £325,000 for individuals and £650,000 for couples (only if they leave everything to each other). If the value of your estate, including your home and certain gifts made in the previous seven years, exceed the threshold, tax will be due on the balance at 40%. However, an estate passing to your spouse/civil partner or charities will pass completely free of inheritance tax.
Many people think that IHT only concerns the very wealthy but property prices are such, that the value of your property alone can easily exceed the tax threshold.
Reducing this tax
There are a number of actions that can be taken to reduce IHT. They include:
- Writing a Will
- Reviewing asset ownership
- Minimising your estate
- Considering marriage
- Using trusts
- Reliefs (agricultural and business)
Come and talk to us and we will explain the use of the above in more detail.