Inheritance tax planning is very important if you are concerned that your estate may be taxed on your death – and with the rise of housing prices not matched by the rise in the inheritance tax threshold, more and more people are finding themselves liable to pay. If you don't want the legacy that you are handing on to your family and children to be unnecessarily diminished then inheritance tax planning is worthwhile.
Firstly, you need to assess whether you will be liable for inheritance tax. The current nil-rate band is £312,000 – if your assets are worth less than this then you are exempt from the tax. Note, however, that rising house prices are catching many people unawares and edging them in to the liable tax band, and that the relevant portion of shared assets also counts towards this total. Assets in excess of the nil-rate band will be taxed at a 40% rate – which is a significant amount indeed.
If you find that you may have to pay and thus that inheritance tax planning may reduce the taxable amount, then there are several possibilities for mitigating the effects of the tax, including:
- Long-term planning of potentially exempt transfers (PETs). Over the course of seven years, the potential IHT on a gift reduces until it becomes exempt at the end of the seven year period. Thus starting now with intelligent transfers and gifts may save on tax in the future.
- Making use of exemptions. In the seven years preceding your death, then up to £3,000 of gifts per year, plus up to £250 of gifts per year per person, plus a variable sum as a wedding or civil partnership gift, is exempt.
- Spousal exemption means that a spouse or civil partner will not have to pay any IHT upon inheriting your estate.
- Trust funds and life assurance can, if carefully set up within the regulations imposed by the government on IHT liability, provide the beneficiaries with a sum of wealth that is not liable for tax.
By filling out the enquiry form we provide on this site, you can get in touch with a group of professionally qualified financial consultants in the UK, who will offer a free initial consultation should you be concerned about a need for inheritance tax planning.