You could be forgiven for thinking “Inheritance Tax won’t affect me!” Of course you’d be right, it won’t affect you. It will, however, affect your children and your grandchildren.
There was a time when Inheritance Tax (IHT) was something only the rich had to worry about. But due to soaring house prices, increasing numbers of people are falling into the IHT net. Many of those affected could be forced to sell the family home within months of inheriting it!
Assets over £325,000 upon your death could be charged to Inheritance Tax at a whopping 40% – but unlike many other taxes there are plenty of things you can do now to make sure you pass on as much of your wealth as possible to your family and friends, rather than to HM Revenue & Customs.
Inheritance Tax has many exemptions and reliefs: here are a few to consider:
● MAKE A WILL. A Will makes your wishes concrete, and stops any assets being divided under the rules of intestacy. It can be the first step to reducing an Inheritance Tax bill.
● MINIMISE YOUR ESTATE. You can’t be taxed on money that was never yours. Have you any life assurance plans written in trust?
● THINK ABOUT YOUR HOME. If you own your home as ‘tenants in common’, on your death, your share may be left to someone else or better still, to a Trust, to reduce the size of your estate.
● EXPLORE TRUSTS. It’s possible to enjoy an income from money paid into a trust, even though you are no longer the legal owner of the money.
● USE ANNUAL ALLOWANCES. Giving away your money will reduce your estate, providing you survive for seven years for most of the gifts to escape the IHT net. However, there are payments which are exempt.
● SPEND IT. Do not lose sight of whose money it is in the first place. If you are worried your wealth is simply building up a tax bill, throw off the shackles and enjoy yourself.
● GIFT TO CHARITY in your Will. A selfless way to deprive the tax man.
● BUY A BOAT! Or other depreciating assets. This is one of the fun ways to reduce an Inheritance Tax bill.
● UTILISE YOUR RESIDENCE TAX ALLOWANCE. There is recent legislation, phased in between April 2017 and April 2020, that enables you to claim an additional tax-free allowance of up to £175,000 per person (worth up to £140,000 tax saving for couples) PROVIDED THAT you qualify. In order to qualify you not only have to fit the laid down criteria, but you have to do the right things AND leave your assets to your beneficiaries IN THE RIGHT WAY. The new rules are complex, and professional advice is essential if you want to ensure your family benefits from this new additional allowance.
We can’t do the spending for you, but we can certainly offer you sound, expert advice on all the points mentioned above.
The Will and Trust Company offers bespoke solutions for Inheritance Tax mitigation. Sound planning in respect of both lifetime transactions and Will-making could ensure your assets go to those you intend, and not into the treasury’s coffers.