With more and more people now facing an Inheritance Tax charge on their estate, good planning can protect your estate from the taxman.
By Kenneth Logan, MA (Hons) CA
Inheritance Tax (IHT) is paid if a person’s estate (their property, money and possessions) is worth more than £325,000 when they die. This is called the ‘Inheritance Tax threshold’.
IHT is currently payable at 40% on the value of taxable assets exceeding £325,000 and in some cases the value of assets given away up to seven years before your death can be brought back into account. So if you own your own home and have some savings and other assets such as shares and securities, your estate could be liable. It is therefore essential to start planning early if you want to minimise exposure to IHT, this could potentially save you many thousands of pounds. But unfortunately this is something that many people choose to ignore, either because they don’t want to consider the future or are simply unable to broach the subject with their relatives.
Here are some of the key areas to consider……..
Take advantage of reliefs up to 100%
There are a number of IHT reliefs available, perhaps most importantly on business and agricultural property, which effectively takes most of such property outside of the IHT net.
Exempt transfers between spouses
When you die, any assets that you leave to your spouse or civil partner are exempt from Inheritance Tax. In addition to this, your partner’s allowance rises by the amount you didn’t leave to other people, meaning that together a couple can leave £650,000 tax free.
A programme of lifetime gifts can also significantly reduce the IHT liability on your estate. As long as you survive the gift by seven years and no longer continue to benefit from the gift yourself, it will escape IHT. Gifts also have the advantage of allowing you to witness your family members benefitting during your lifetime.
Trusts can be used to help maintain a degree of control over the assets being gifted, especially useful in the case of younger recipients.
Your Will is your ultimate opportunity to get money matters right and it is important that you review it at regular intervals to make sure that it reflects changes in your family and finances, it is tax efficient and includes any specific legacies you would like to give, including tax free donations to charity.
As you will see, good planning really can ensure that more of your estate passes to your loved ones rather than to the taxman.
Tax planning is undoubtedly a complex area and as your accountant it is our job to make sure that you are tax compliant. But we can also advise you on sensible strategies to keep your tax liability to a legal minimum, leaving you with more money for yourself and your family and more to invest in your business too. For specialist help with your tax planning, please don’t hesitate to get in touch with us.