"In this world nothing can be said to be certain, except death and taxes"
Many people assume that their estate will pass to their surviving spouse or family members in the event of their death. This is not always true, a Will is a corner stone to good planning.
The law states that your estate will be distributed to your surviving relatives depending on its size and the inheritors will be taxed accordingly at up to 40% on everything over and above the Nil Rate tax Threshold, currently £325,000 per person.
Inheritance tax (IHT) is commonly referred to as a 'gift tax' or 'death tax.' If, at the time of your death, you pass on part or the whole of your estate, then the inheritor could be liable to pay inheritance tax.
However, because this is a voluntary tax, with appropriate estate planning IHT can be legitimately avoided, and the inheritor will potentially be saved from paying considerable amounts of tax.
Roy Jenkins, the former Labour Chancellor of the Exchequer, famously described IHT as;
"a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue..."
Our job is to guide you through these areas and ensure your estate plan and inheritance wishes are financially optimised and securely taken care of so that your estate is distributed within the rules efficiently to whom your Will states you want it to go to.
When your estate amounts to more than £325,000, there are inheritance tax exceptions that we can help with, for example;
For more information on reducing your inheritors tax liability please contact us.
Trusts can play a major part in Inheritance Tax planning. The effectiveness of the trust may be spread over a period of years, although in other cases, for example Discounted Gift Trusts, there can be a substantial immediate effect in reducing IHT liability.
In addition to their usefulness for IHT planning, Trusts serve various other purposes. Not least of these is that of avoiding the probate process and the delays this can create in settling family affairs in the event of bereavement.
Many people know the simple rule that if you make a gift to someone, it doesn't fall outside of your estate until 7 years have passed, there are other rules and plans that can be considered that do the same after 2 years.
However, appropriate advice needs to be taken at all times.
Simple planning, can make this whole subject much easier.
Planning your will is often the cheapest and most effective form of inheritance planning. It saves your family a lot of problems after you have departed. Too many people assume their estate will pass to their surviving spouse in the event of their death. This is simply untrue as the intestacy rules will distribute the estate in accordance with a formula laid down in law depending on the size of the deceased's estate and their surviving relatives. It is therefore imperative that a will is in place.
In the case of unmarried couples, without a will the survivor may have very few rights, and this can cause no end of legal problems if children are involved and joint assets such as a home.
Even married couples, where a partner is of overseas origin, can find that their IHT tax exemptions are much lower than expected.
To establish whether or not tax will be due against your estate upon your death, we calculate the value of all the estate's assets: home, possessions, investments, cash, joint or shared assets and trusts, deducting debts. Usually the executor pays the inheritance tax from the estate. In the case of trustees, they are responsible for paying the tax. Tax dues are paid within six months of one's death.
There are a number of tax planning strategies that we can advise you upon, depending on your wishes and circumstances.
Use our inheritance tax calculator to give you more information. Give us a call and explain your own unique inheritance situation and what you would like to do, and we will help if we can.
Under the new IHT rules, more estates are likely to pass free of IHT post–5 April 2017. By 5 April 2021, some estates worth £1 million will pass free of IHT. This is the good news, but it’s far from the whole picture. For many, in particular the childless, the IHT could in fact (with the effect of inflation) be higher post–5 April 2017.
The residence nil-rate band is available on top of the existing IHT nil-rate band of £325,000, so that in 2020/21 an individual will potentially be able to leave £500,000 free of IHT.
For deaths from 6 April 2017, the additional IHT-free ‘residence nil-rate band’ (RNRB) will be available. This starts at £100,000 in 2017/18 and increases by £25,000 each tax year, reaching £175,000 by 2020/21. From 2020/21 onwards, the RNRB will increase each year in line with increases in the Consumer Price Index.
This RNRB is available where the deceased leaves a property (or the proceeds of sale of a property) in which they have lived at some point to their direct descendents or the spouse or civil partner of a direct descendent (children and their issue). The additional RNRB will not be available to the most valuable estates. This is because where the value of the deceased’s estate (after deducting liabilities but before deducting any reliefs and exemptions) exceeds £2 million, the RNRB will be reduced by £1 for every £2 that this £2 million threshold is exceeded.
As is now the case with the standard nil-rate band, where the first of a married couple to die leaves their estate to their spouse, the RNRB can effectively be ‘passed on’ to the surviving spouse. For those with a conventional family, a modest home and savings (and subject to the rate of house price increases in the coming years), it is therefore likely that no IHT will be payable on their estate.
Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.
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