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Don’t Leave Your Money To The Taxman

Protecting your family’s wealth is something people often don’t think about until they are older. Forward planning in this area and being aware of what you need to do is really important if you want to ensure your loved ones are provided for.

By making full use of exemptions, lifetime giving and other reliefs you may well be able to substantially reduce the potential inheritance tax liability for your loved ones.

Have you got a Will?

This is something we would always recommend and that you should review it on a regular basis. Far too often people do a will and don’t revisit it. Many things can change over the years from your personal circumstances to legislation, which you may need to take action on. Don’t forget to review your will and ensure you update it with the necessary changes.

What is the additional residence nil rate band?

From 6 April 2017, there was an additional residence nil rate band currently £150,000 for certain estates if an individual leaves a home to their children or direct descendants when they pass away. Relief is reduced or lost completely for estates exceeding £2 million.

Do you want your beneficiaries to be able to use the additional “residence nil rate band” then ensure that a sufficient proportion of your estate is left to your direct descendants, which includes adopted, foster, stepchildren or step grandchildren.

Important things to know about Inheritance Tax 

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

It’s important to know there’s normally no Inheritance Tax to pay if:

  • the value of your estate is below the £325,000 threshold
  • you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

If the estate’s value is below the threshold you may still need to report it to HMRC.

If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This means their threshold can be as much as £950,000.

Inheritance Tax rates

The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Example Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).

The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will. So if you have a charity that is close to your heart it is worth bearing this in mind.

Retain records for gifts you give to loved ones

You may want to make loved ones a gift to utilise the annual gift allowance or to start the seven year clock ticking for larger amounts. It is important to retain records to show the gifts you have given and the income available to gift.  

There’s usually no Inheritance Tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These sorts of gifts are known as ‘exempted gifts’.

There’s also no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently.

However, other gifts count towards the value of your estate.

People you give gifts to will be charged Inheritance Tax if you give away more than £325,000 in the 7 years before your death. It is always worth checking if you plan to make gifts whether it impacts the allowance available to your main estate.

Do you know what sort of gifts can be taxed after your death?

For example a gift can be:

  • anything that has a value, such as money, property, possessions
  • a loss in value when something’s transferred, for example if you sell your house to your child for less than it’s worth, the difference in value counts as a gift

More complex estate planning may include considering setting up a trust or selling assets but this needs to be considered carefully as there may be other tax implications.

When does Inheritance tax need to be paid?

If the individual has a will it is the executor of the will who is responsible for paying any inheritance tax.

It should be paid within six months after someone has passed away. If the tax isn’t paid within the correct timeframe HMRC will start to charge interest.

Do you need help?

Our tax advisers can provide help in planning your estate or assistance in completing the Inheritance Tax forms to enable a solicitor or the executor to apply for probate. With our help we can help you to maximise the wealth you pass onto your family. Contact us if you want to talk about Inheritance Tax 01494 552 100. This blog is for guidance only, and professional advice should be obtained before acting on any information contained herein.