On 4 April 2020, the government updated its guidance for employers in relation to the Coronavirus...
Inheritance Tax planning
Have you considered inheritance tax planning?
As the saying goes, there are two guarantees in life – death and taxes. It is therefore important to consider what will happen when the two come together in the form of inheritance tax.
What is inheritance tax, or IHT?
Inheritance tax, also known as IHT, is the tax payable on your estate when you die. Your estate being the common name for your property, money and possessions less any liabilities that need to be settled. The rules on tax are always subject to change, however, at present (2019) there is no tax payable if the value of your estate is less than £325,000 or if the entire estate is left to your spouse or civil partner. This is referred to as the “Nil Rate Band”. In addition, if you were to die as a widow then you could inherit the whole or remaining balance of the Nil Rate Band from your late partner’s estate and equally, meaning that no tax would be payable until your estate is valued at £650,000 or more.
So what can you do if you know your estate is going to be worth more?
The government has recently introduced an extra allowance called the Residence Nil Rate Band. This allowance is available where you leave your interest in a property to your lineal descendants. This includes your children and grandchildren, as well as their spouses or civil partners. The allowance is currently available is £125,000 and will increase annually by £25,000 until April 2020, when it reaches £175,000.
Further tax advantages can be made by creating a trust under your will or leaving 10% of your estate to charity. But it is not only through careful will drafting that you can reduce your inheritance tax bill. Making gifts during your lifetime to friends, family and charities will reduce your assets and therefore the size of your estate. Also, changing the way you own your property and assigning your life insurance policies to pay to a specific beneficiary can result in these assets falling outside of your estate.
However, there are strict rules around the making of lifetime gifts which means they can be brought back into your estate, and there are pitfalls to consider when deciding whether to part with your property. IHT and estate planning can be complicated, therefore it is crucial to take professional advice to ensure that no unforeseen consequences occur and your actions achieve the desired saving when the time comes.