Personal Tax Planning

Inheritance Tax Planning

Managing and Planning for Inheritance Tax

Inheritance tax, estate tax or the death tax‚ is the tax that is levied on a person when they die. The inheritance tax is taken out of a person’s assets before being passed on to their heirs. If you have a sizeable estate and plan on passing your inheritance to your friends or family members, you’ll need to carefully plan to account for the inheritance tax before your passing.

Who Does the Inheritance Tax Apply To?

The inheritance tax applies if you have more than £325,000 in assets or £650,000 in assets as a married couple. These are the laws in the United Kingdom; other countries will have different limits.

What counts as an asset? Just about everything you own. Residential and commercial property, cars, boats, investments, companies, gold, cash, pension schemes, life insurance policies and even art and rare furniture. If an object has a clearly definable value, such as the market value of a company’s stock, that value is used to count towards your assets. If there’s no clearly definable value, as in the case of a non-public company or a piece of art, an independent appraiser will be needed to give a valuation.

Know Your Exemptions

There are a few key exemptions to the inheritance tax planning that you should know about.

First and foremost, there is no inheritance tax to leave assets to a spouse or civil partner who lives in the UK. In other words, if you’re married, you can give everything to your wife or husband with zero inheritance tax. You cannot do the same with other family members, including children.

Charity is another exemption. Any money given to a non-profit charity foundation can be given with pre-tax money.

It’s also worth noting that you can give away £250 to as many people as you’d like without paying inheritance tax.

Finally, there are a few relief measures that could affect how much you need to pay in inheritance taxes. These include programs for farm owners and business owners.

Planning for Inheritance Taxes

There are a few different ways you can plan to avoid or manage your inheritance tax.

The first is to make use of your gifts. Under UK law, any gifts you give seven years before your passing doesn’t count towards your inheritance tax. That’s why a lot of people begin to give away their estates well before they pass to avoid getting hit by this tax. Anything that’s gifted within the seven years prior to your passing will be taxed.

The second thing is to make sure you have a crystal clear, iron clad will and a clear executor designation. Make sure there is no confusion as to how you want your estate handled when you pass.

Finally, consider the use of one of our Trusts to pass on the benefits of your estate instead of a straight inheritance. Using a trust can allow you to pass on your estate much more tax efficiently. It can also help you make sure your inheritance isn’t squandered by passing it to children before they’re ready to manage the money.

If you fall within the inheritance tax bracket, you should carefully plan exactly how you plan to leave your legacy behind. The difference between good planning and poor planning could be hundreds of thousands of pounds.

If you would like further information, please contact us using the form in the sidebar on the right hand side, or simply call us directly on 0845 388 9002.