Inheritance Tax planning
Inheritance tax (IHT) is sometimes called the voluntary tax because, with a bit of planning, it can be avoided.
This tax was originally intended only for the very wealthy, but it now catches an estimated 30,000 estates each year.
Having paid tax on your earnings, and more tax on your savings, your loved ones could then have to pay tax on their inheritance. You might wonder why this is your problem? After all, when the bill comes in you are dead! But how would you feel if the Chancellor collected more from your estate than your children did?
Former Chancellor of the Exchequer, Roy Jenkins, once said ’Inheritance Tax is a voluntary levy paid by those that distrust their heirs more than they dislike the Inland Revenue.’
IHT becomes an issue when someone dies. It is a one-off tax paid on the value of the deceased’s estate above a set threshold – currently £325,000. The tax is set at 40% of any value over that threshold.
This could be a very significant amount indeed, but the good news is that there are lots of ways to reduce the amount of IHT your family will pay after you have gone. Here are a few tips:
- Make a Will.
- Be generous now rather than later (but be careful of ‘gifts with reservation’ rules).
- Make use of your allowances.
- Be clever and use a trust; this can be a simple way of gifting without losing complete control.
- Make regular gifts from income; these can be exempt if they don’t reduce your standard of living.
- Fancy being a farmer? There are complex rules governing both business property and agricultural land relief, but potentially these assets can be free of tax.
- Specialist investments; not for everyone but can be exempt within two years.
- Equity release; can be a way of releasing some of the value from your home while you are still alive.
- Emigrate; a bit drastic maybe, but if your country of domicile changes ‘more than just your country of residence’ only assets remaining in the UK would be taxable.
The above highlights the importance of getting the right advice and doing your planning now and not when it’s too late.
Inheritance Tax can be an issue because it’s in the ‘too difficult’ category. But there are things you can do, and the sooner you address the problem the more options you will find available to you.
Our advisers will work with you to help you to organise your estate in a way that will mean your relatives do not end up paying more IHT than they need to after you have gone. For more information contact a member of our team.