Inheritance Tax Advice
Inheritance tax also referred to as IHT is a tax imposed on the estate of a deceased individual at a standard rate of 40%.
The eligible parts of an estate that may be subject to IHT are typically money, property and possessions.
IHT is a topic that affects many individuals with forward planning as early as possible crucial to minimising potential inheritance tax liabilities.
Even if plans have already been made your IHT position can require ongoing attention especially if your circumstances change.
HMRC provides an IHT tax free threshold which normally means that estates valued below £325,000 are exempt from tax.
However if the estate is worth more than the IHT threshold it may be beneficial to make use of tax planning to lessen the tax obligation upon death.
Should I use an Accountant for Inheritance Tax?
Inheritance tax planning can be a challenging task due to the numerous factors you need to consider.
These factors encompass the extent of your estate, your health condition, your affordability to give away and your future requirements.
By not using the best available options for IHT purposes at the earliest opportunity or making adjustments to your IHT plan at the right time you are risking an avoidable tax bill from HMRC.
An IHT adviser can support you in the planning process, either as part of a comprehensive tax planning strategy or solely to help you decide how to transfer your wealth so your loved ones can benefit from your assets, wealth and property.
How can an IHT Adviser help me?
The support given by an IHT adviser will be based on your own individual circumstances to ensure that your estate is structured efficiently from an inheritance tax (IHT) perspective.
Some of the most common areas covered by an IHT adviser include:
What is exempt from IHT:
Not all assets qualify for inheritance tax for example the residence nil rate band can mean IHT isn’t applicable on the family home you lived in and gave away before you died.
The residence nil rate band can be added to the IHT tax free threshold which can mean depending on the value of the property it won’t fall into IHT territory.
IHT for married couples and civil partners
Individuals who are married or in a civil partnership can share some allowances and reliefs. For example if your spouse or partner dies without using their full nil rate band allowance the unused amount can be carried forward and used when you die.
Gifts and the 7 year rule
Gifting your assets is one way to avoid paying inheritance tax with an annual exemption of £3000 available for all qualifying gifts. The £3000 tax free allowance is called your annual exemption.
Individuals may be liable to pay inheritance tax on gifts made within seven years before their death.
Taper relief
Taper relief is available to reduce the amount of tax paid on gifts received outside of a trust within seven years of your death.
The taper relief applies IHT on a sliding scale instead of the standard 40% rate.
IHT and Pensions
Most modern defined contribution pension products are not taxable and can be an excellent way to pass on valuable wealth to future generations.
Some people may want to consider taking income or capital from their estate assets before tapping into their pension, which is not subject to Inheritance Tax.
Trusts for IHT
A trust is a method of managing assets such as money, investments, land or buildings for individuals.
Trusts are legally binding agreements that come in various forms and are subject to different tax laws.
The key participants in a trust include the settlor who contributes assets, the trustee who oversees the trust, and the beneficiary who receives benefits from the trust.
Business Relief for IHT
Business Relief is a useful tool to minimize the amount of inheritance tax payable on a business or its assets.
It’s important to note that any ownership or share of a business is considered part of the estate for inheritance tax purposes.
Business assets like buildings, unlisted shares, and machinery can be eligible for relief of either 50% or 100%, which can be passed on during the owner’s lifetime or as part of their will.
Business Asset Disposal Relief
Business asset disposal relief is also known as entreprenuers relief is a tax relief that can be applied to the sale of a business or its assets.
This relief reduces the amount of capital gains tax payable which is usually charged at a rate of 18%, 20% or 28%.
This relief can be incredibly beneficial for eligible business owners as it provides a valuable tool to substantially reduce their CGT.
Life Insurance for IHT
If you put your life insurance in a trust it can safeguard it from inheritance tax. By doing so it will not be counted as part of your estate which ensures the complete life insurance payout can be received without any IHT deductions.
Don’t forget to make a Will
Creating and maintaining an updated will is key for effective inheritance planning.
It’s also essential to choose a reliable executor who will take care of paying the IHT bill from your estate.
Your solicitor can provide legal guidance in drafting your will (including writing a trust into your will) and making adjustments when required.
A combination of having an up to date will and receiving quality IHT tax planning helps ensure that the wealth you accumulate benefits not only yourself but also those who you choose to pass it on to.
