To put it simply, inheritance tax planning is the tax-efficient distribution of your assets after your death.
The exact details depend on how much your estate is worth. If your total assets are over the inheritance tax threshold (IHT), your family/friends might have to pay a bill after your death. But, IHT can help you keep that bill to a minimum.
In the planning process, you’ll decide who you want your beneficiaries to be, when you want them to receive help and how you can help keep their inheritance tax to a minimum. An IHT wealth management adviser might also talk about wider planning, such as pension planning, financial planning and investments.
Let’s assume you leave:
£90,000 worth of savings, investments and possessions.
Your main residence, which is worth £375,000.
This would mean the total value of your estate is £465,000.
Now, if you had left this amount just in savings, it would exceed the inheritance tax threshold and your beneficiaries would have to pay 40% tax on £140,000.
However, because you left your main residence as part of the estate, you benefit from the Residential Nil Rate band. This tops up the inheritance tax rate threshold to £500,000. Your £465,000 estate is below this, so your beneficiaries have no inheritance tax to pay.
Furthermore, because you have £35,000 of your nil rate band unused, this can be added to your surviving spouse or civil partner’s estate. Deleted this
Inheritance tax must be paid within 6 months of the deceased dying, and interest is charged on late payments. The tax must be paid before the beneficiaries receive the assets, which presents a bit of a problem.
There are a few solutions for this, though.
Instructing professional financial advice will help you manage your liabilities and deadlines in a tax-efficient way.
There are exemptions to inheritance tax; these are transfers you can make at any time without incurring inheritance tax. Some exempt transfers you can make use of are:
Financial advisers can help you make use of exemptions in the right way.
Solutions to inheritance tax mitigation can include trust planning and the use of reliefs, gifts and allowances permissible by HMRC. For any of these solutions to be effective, they must be planned carefully and they must abide by HMRC rules. For example, for an outright gift to be exempt from inheritance tax, it needs to be given 7 years before death. This requires careful planning to make sure you are not left short in later life by any gifts you make.
IHT planning is a complex area of financial planning, so you should instruct an IHT wealth management service. Your IHT wealth management adviser will discuss mitigation, and they will advise on how this can be achieved whilst still meeting your other financial planning objectives.
Our team of experienced financial advisers will work closely with you to understand your unique financial position. Our IHT advisers will then determine the likely value of your IHT bill. Our IHT wealth management team will also discuss your beneficiaries and how you would like your estate to be controlled.
Then, our IHT wealth management team will start to make a tailored plan to prevent the tax man from being your biggest beneficiary!
Who is liable for inheritance tax?
As the estate owner, you do not pay the IHT. The beneficiaries are the ones responsible. Specifically, the Executor/Administrator of your estate. Your beneficiaries and Exec/Admin could be the same person, or they could be different, depending on how your will is set up.
How is it paid?
Paying the bill can be stressful during an already stressful time. It is a little complicated, too, as the bill is due before the money is released. Here are a few ways the bill can be paid:
Can everyone benefit from the Residence Nil Rate Band?
No, there are a few stipulations. Your home must be part of the estate. The total value of your home must be under £2 million. You must have left your home to your ‘direct descendants’.
Isn’t the 40% tax bill only for high earners?
When talking about income tax, yes. However, with inheritance tax, it is a 40% flat rate no matter how much your beneficiaries earn.
Is life insurance subject to inheritance tax?
It depends on how the insurance policy is set up. Sometimes, the policy can be included in the estate unless it has been placed in a trust.
Can I give away my home and keep living in it?
Some measures prevent this. An individual cannot give away an asset and then continue to benefit from it. So, you can’t give away your property early to avoid IHT.
There is no magic number. Starting too early might not be worthwhile, especially if you haven’t accumulated many assets yet. Likewise, starting too late can put unnecessary time constraints on the process.
The best course of action is to talk to IHT wealth management advisers to get their opinion on when is the right time for you to start thinking about inheritance tax advice.
Wealth management involves growing and preserving assets through various strategies, tax planning and risk management. Estate planning to ensure your wealth is distributed according to your wishes, after you pass. It also involves minimising the impact of taxes and legal complications.
Our IHT wealth management can help with all of these areas.
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