What is Inheritance Tax?
It is a tax levied against a person’s estate on death, after any relevant allowances are taken into consideration.
The rate is currently 40%, which means that the taxman can take a hefty slice!
What is included in your estate?
HMRC will value the estate on death, and will typically include the following:
your savings (bank accounts, investments etc.)
possessions (including property)
depending upon exemptions, the value of any money or property you gave away during the seven years prior to death.
A Will is the primary way of ensuring that your estate is distributed, as you wish. If you wish to reduce the potential Inheritance Tax owed on your death, there are ways in which you can plan to reduce the future liability, as follows:
How can you reduce your IHT liability?
We all have a Nil Rate Band, currently £325,000, to utilise. The standard Inheritance Tax Nil Rate Band (NRB) is currently £325,000 per person. This means that assets up to this value can normally be passed on free from Inheritance Tax, although the amount available may be reduced if certain lifetime gifts or trust transfers have been made. In addition, a Residence Nil Rate Band (RNRB) of up to £175,000 may be available where a qualifying home is left to direct descendants, such as children or grandchildren.
If you leave all your estate to a husband, wife, or civil partner, then usually no IHT will be due. In addition to this, it is possible to pass any unused Nil Rate Band or
Residence Nil Rate Band to a surviving partner.You can utilise annual gift allowances and provide gifts for specific people/purposes.
Donating to registered UK charities is also IHT exempt when alive and through your Will. Donating 10% or more of your estate to charity can reduce the IHT rate applied to your estate to 36% instead of 40%.
Using trusts can also be a way of reducing your IHT bill. Setting these up is a complex area and professional advice is vitally important.
There are various investment vehicles specifically designed to be IHT friendly (for example, an Enterprise Investment Scheme). These can be high-risk, and one of our advisers will be able to assist you in recommending the appropriate solution.
All the methods mentioned have strict rules attached to them, and we would strongly recommend seeking professional advice from one of our financial planners, here at Lovewell Blake Financial Planning, we are based across our multiple offices in East Anglia including, Norwich, Great Yarmouth, Halesworth and Bury St Edmunds.
We offer a range of financial planning services, including inheritance tax advice, helping you to pass on as much as possible to your loved ones.