Most of us like to think that when we pass away the assets that we have worked hard to accumulate will be enjoyed readily by the people we have left them to.
The death of a relative is never an easy subject to discuss, but not only is there an emotional impact to consider, the financial implications are of paramount importance also. Making sure that preparations are put in place to safeguard your intended heirs’ inheritance can be vital.
Inheritance Tax (IHT) is a tax charged by the Government on the value of a person’s estate at their death. It is charged at the rate of 40%. Understanding the basic tenets of IHT may help you plan a less expensive and less fraught financial succession.
Do most people have to pay Inheritance Tax?
The first £325,000 of a person’s estate (known as the “nil rate band”) is not charged to Inheritance Tax. If an estate is worth less than £325,000, no Inheritance Tax is payable.
If I leave my whole estate to my husband/wife, will Inheritance Tax be payable?
This is a common area for confusion: A gift between spouses or civil partners is exempt from Inheritance Tax. If the estate of a married couple/civil partnership exceeds £650,000 tax will usually only be paid on the excess, as long as the necessary claims are made to HMRC within the appropriate timeframe.
Can I give assets as gifts during my lifetime to reduce the size of my estate when I die?
You can make a gift during your lifetime; however if you die within 7 years of making the gift, its value is added to the value of your estate on death. You will also need to consider whether there is a potential liability to Capital Gains Tax (CGT) when deciding whether to make a gift or not.
Are there any exemptions to the “Seven year rule”?
Yes, there are a number of exemptions. You can gift up to £3,000 each year – this is known as the annual exemption. You can make gifts of up to £250 to different individuals. If your child gets married you can make a gift of £5,000. There are other exemptions which may be suitable for your specific circumstances.
If you are concerned about Inheritance Tax and would like to discuss anything in further detail, we would be delighted to speak to you. Call our office on 0113 3878240 to arrange a free initial consultation.
*Inheritance Tax planning is not regulated by the financial conduct authority