Inheritance tax is a tax on your assets that belong to you when you die.
Individuals have a nil-rate band, if the value of your estate is worth less than the nil-rate band, inheritance tax would not be payable. You may also be able to claim “main residence nil-rate band” allowance. If your estate is worth more than the nil-rate band your executor may be liable to pay tax on anything above this threshold.
Below are some of the option available to reduce your inheritance tax.
The first step to estate planning is to make a Will and keep it up to date. Without a Will your estate will be subject to intestacy rules which could mean that the things you leave behind don’t go to the people you have chosen. Remember that as your circumstances change over time so will the need to update your Will.
There are a number of exemption that could be used to reduce the value of your estate. If used correctly they are the most efficient way to reduce any inheritance tax bill.
Annual exemption allowance– you can gift up to set limits each year. Where total gifts in a year fall short of this allowance, the balance can be carried over to the following year and added to that year’s allowance.
Spouse exemption– most married couples can ensure no inheritance tax is payable by arranging through a Will, that on first death all the deceased spouse’s assets pass to the surviving spouse.
If you can afford to gift some of the assets you own it may be possible to reduce the size of your estate, which could reduce your potential inheritance tax bill. Any gifts that fall within the following exemptions, will be immediately outside your estate and the value of them will not be subject to inheritance tax.
Parents up to £5000
Grandparents up to £2500
Anyone else up to £1000
Up to £250 to as many individuals as you like per tax year.
Gift at least 10% of the value of your estate in your Will and reduce the amount of inheritance tax paid to 36%
A trust is a legal arrangement where a person (trustee) holds assets for the good of one or more beneficiaries. Trusts are complicated and must be set up carefully. Please speak to one of our experts advisers, who will be able to advice on what trust, if any, would be best for your needs.
Hopefully you now a little more about how to minimise your potential inheritance tax liability. If you feel prompted to reduce it, please contact us to discuss your needs and the options available to you.