ESTATE PLANNING
Inheritance Tax Planning
Inheritance Tax is the tax applied to the estate of someone who has died.
Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, possessions, and money. The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the tax-free threshold which is currently £325,000.
How to Mitigate Inheritance Tax Bill
Here are just a few ways you can reduce your Inheritance Tax
1.Make a Will
Making a Will is a major part of estate planning. You can ensure that your assets are distributed in line with your wishes. Without a Will in place your assets are distributed according to the rules of intestacy. Potentially this makes them liable for Inheritance Tax bill, which may have been avoided by making a Will.
2.Stay below the Inheritance Tax Threshold
The Inheritance Tax threshold currently stands at £325,000 (NIL RATE BAND) per person which will remain at the same level until 2026. It is transferable to a spouse or civil partner on death, resulting in a total NIL RATE BAND of £650,000 for couples.
In addition to NRB threshold, main residence transferable allowance (RNRB) is also available in certain circumstances which is £175,000 per person for the tax year 2020-2021. Therefore, married couples or civil partners could potentially pass on up to £1 million free of IHT.
3.Gift your assets (the 7 Year Rule)
If you give your assets away and you survive for at least 7 years, then all gifts are free from Inheritance tax. However, if you die within 7 years of making the gift, Inheritance Tax is paid on a reduced scale (TAPER RELEIF). You can also give £3000 in gifts in any tax year.
4.Put your assets in a Trust
If you put your assets into a Trust, they will not form part of your estate on death and avoid inheritance tax. For example, you could place assets into a Trust for the benefit of your children when they reach the age of 18.
5.Leave something to Charity
Anything left to charity is free of Inheritance Tax liability. If you leave at least 10% of your total assets to charity the remaining assets will be taxed at 36% instead of 40%.
6.Taking out life Insurance
You can take out a life insurance policy to cover any potential Inheritance Tax Bill and placing the policy into a trust to ensure that it is paid outside your estate.