With the steady rise in house prices, many people started thinking about Inheritance Tax.
Several years ago, the tax laws changed which means that most married couples (and civil partners) will benefit from using up to two Inheritance Tax allowances of £325,000 each. Some people, who have lost a partner and then remarried may even be able to pass on an estate on nearly a million pounds free of Inheritance Tax without even knowing it.
However, the facts are that anyone with an estate of over £325,000 has a potential Inheritance Tax problem. This tax liability is currently 40%. On death this burden is passed to your beneficiaries and in most cases the tax bill has to be paid prior to the release of the inheritance.
With the correct financial planning we can help mitigate Inheritance Tax and ensure as much of the estate is paid to the beneficiaries as possible.
Making a will
Making a will is the first step in ensuring that your estate is shared out exactly as you want it to be. If you don’t, there are rules for sharing out your estate – called the Law of Intestacy – which could mean your money going to family members who may not need it, or your unmarried partner, or a partner with whom you are not in a civil partnership, receiving nothing at all.
If you leave everything to your spouse or civil partner there’ll be no Inheritance Tax to pay because they are classed as an exempt beneficiary.
Or you may decide to use your tax-free allowance to give some of your estate to someone else, or to a family trust (see the section on ‘Trusts’ below).
You may decide to use a trust to pass assets to beneficiaries, particularly those who aren’t immediately able to look after their own affairs.
If you do use a trust to give something away this removes it from your estate, provided you don’t use it or get any benefit from it. But, bear in mind that gifts into trust may be liable to IHT. Trusts are complicated and it’s best to get specialist professional advice.
We are able to provide advice on how to plan for Inheritance Tax, and often the solutions we recommend will ensure that your family benefit from a larger estate, just by careful planning in advance. This page is based on our understanding of the tax laws as at April 2012. i.e the 2012/13 tax year, assuming UK Domicile.