What is inheritance tax?
Inheritance tax is a tax paid on the property, money, and possessions of someone who had died. The tax is charged on your estate at 40% and the executor of your will is responsible for arranging payment.
When do you have to pay inheritance tax?
The beneficiaries of your will will be liable for inheritance tax if:
- The value of your estate is above £325,000. This includes property, money and possessions, with the tax being charged on any amount over the threshold. For example, if you left an estate worth £330,000 the inheritance tax would be 40% of the £5,000 you are over the threshold, or £2,000.
- Large gifts such as property or large sums of money will be included when valuing your estate for inheritance tax purposes if you die within seven years of the gift being given. This tax is on a sliding scale, however, so will decrease in stages after three years.
- If you live abroad but have assets in the UK, those assets will be subject to UK inheritance tax laws upon your death.
The benefits of proper estate planning
Proper estate planning can benefit your family in numerous ways, including:
- You can ensure your children, grandchildren and other loved ones sees the maximum benefit from your hard work after your death.
- Avoiding any disputes which may arise around people’s share of your estate in a time when emotions are running high.
- Ensuring the beneficiaries of your will won’t have to worry about expensive tax bills during the grieving process.
- Protecting you and your beneficiaries from changes in the law regarding inheritance.
How to reduce your inheritance tax obligations
There are a wide range of strategies you can employ to ensure you don’t pay more inheritance tax than you need to, such as:
- Regularly review your plans: Your circumstances and the laws around inheritance can change dramatically in a short space of time, regularly reviewing your estate plans will ensure they are always up-to-date and take any changes into consideration.
- Donate to charity: If you donate 10% of your estate to charity upon your death, inheritance tax will be reduced to 32%. Saving your beneficiaries money and helping a good cause of your choice.
- Give regularly: You can give away up to £3,000 worth of gifts each tax year without them being added to the value of your estate. Alongside this, wedding, birthday and Christmas gifts do not count towards your estate as long as you are able to maintain your standard of living after the gift.
Our most important advice to help you minimise your inheritance tax obligations would be to speak to a professional. Their job is to ensure your estate planning is both fair and tax efficient, leaving you to focus on enjoying your life.
To speak to one of our expert Estate Planning team members you can call us on: 0161 969 3131 or fill in our online contact form.