When the time comes to think seriously about how our assets will be distributed after we pass away, the main concern most of us have is to make sure that our loved ones will be provided for. However, what many people don’t consider when they leave their legacy, is how the final amount left to your beneficiaries may be affected by fees and taxes. Most notably, inheritance tax (IHT).
How Inheritance Tax (IHT) works:
In the 2015-16 tax year, £4.7 billion worth of inheritance tax payments were taken by HMRC. This was an increase of 22% compared to the previous year, and a number of experts attributed this to rising house prices.
An individual can pass on wealth (including money, property, and possessions) worth up to £325,000 without paying tax, whereas a couple can pass on £650,000 before being charged inheritance tax on the value of their estate. Anything over this threshold will be taxed at 40%, according to the current IHT rate.
This means that if your estate exceeds this amount, you will be taxed and the final sum left to your loved ones may therefore be significantly lower. However, the way to ensure you aren’t paying unnecessary taxes and fees on your estate is to seek inheritance tax planning advice from a trusted financial advisor.
At Wills, Tax and Trusts, we employ a team of expert financial advisors, who can assist you with inheritance tax planning, to ensure that your beneficiaries don’t pay the price of unnecessary IHT on their inheritance. You can submit an enquiry via our contact page, and a team member will be in touch shortly to discuss your options.
Isn’t it only wealthy people who pay inheritance tax?
Historically, inheritance tax would only affect people whose estates were much more valuable than the average person’s – simply put, wealthy people. However, in recent years, thanks to soaring house prices and other market conditions, a greater number of people find themselves being subject to inheritance tax.
Wealthy people have often found ways to reduce the amount of unnecessary inheritance tax they pay, using legal methods such as trusts. Family trusts used to be exceedingly expensive to create, but thankfully, they have become more affordable to people and are a viable option to minimise the amount of inheritance tax you’ll pay on your estate.
There are many ways to reduce the impact of Inheritance Tax – Trusts are only one of them. Inheritance tax is not a tax on the rich, it is a tax on the unwary. Make sure you won’t be caught out by speaking to one of our financial advisors today.
What is the difference between IHT planning and tax avoidance schemes?
Whereas tax avoidance schemes are legal, tax evasion schemes are their illegal counterpart, which can involve the hiding of assets and other illicit methods for evading the tax the government requires you to pay.
Tax planning, on the other hand, is a proactive route to ensure you are not paying more tax than is necessary on assets which you have worked hard to acquire. A person’s estate should be properly planned, in order to give the maximum benefit and ensure that their loved ones are provided for. IHT planning is not illegal, as the goal is not to evade tax which is rightfully due, but to ensure you aren’t paying more than is necessary.
Inheritance Tax Planning Advice & Resources
For more information about inheritance tax, and other financial planning resources, you may like to visit the Wills, Tax & Trusts financial news blog, which includes insights from our team of experienced financial planners and inheritance tax advisors.
We also have a range of free guides which are available to download. You may be interested in our Guide to Residence NIL Rate Band & Inheritance Tax Planning. Or, for more information about inheritance tax planning, you can download our IHT planning booklet, which will give you all the information you need to begin preparing your estate.
Alternatively, contact us today for help from our expert team!
What People Say About Us
“Ray listened and advised and wrote my will after my personal circumstances changed. It was straightforward. Everyone in the office is kind and thoughtful and made me feel extremely comfortable, and at ease. I would highly recommend Wills Tax & Trusts and would certainly use them again in the future.”
– Alison Roster
“Ray Best & his Team are very professional but also very personable. Ray helped us through the minefield of wills and trusts to secure our family interests and now looks after our interests in pension investments. We now feel much better looked after and have good visibility, would highly recommend.”
– John Childs
“I was introduced to Ray about 10 years ago. In that time I have used Ray for tax planning, wills for my wife and I, estate planning and trusts. Ray has a sharp attention to detail and a wealth of experience. If you need someone professional, that can expertly map out your options, discuss the merits of each one, then I can think of no one better.”
– Chris Allen
Inheritance Tax Planning: FAQs
What is inheritance tax planning?
Inheritance Tax (IHT) is a tax which is applied to the estate of a person who has died, but is typically only applied if the estate is valued at £325,000, or above. However, the amount of inheritance tax due can vary depending on a number of factors.
Inheritance tax planning is when an individual works with a trusted financial advisor, to ensure that their estate won’t be subject to unnecessary taxes or fees after their death. IHT planning helps to ensure that your loved ones will be provided for, and they receive the largest possible share of the money, property, or possessions willed to them, after the IHT has been applied.
When should I start planning inheritance tax?
If you are an individual with assets worth a significant amount, you should speak to an advisor about IHT planning as soon as possible. Life can be unpredictable, and even with a last will and testament in place, your loved ones may still be subject to unnecessary taxes and fees after your death, which will impact the legacy you leave behind.
If you have a spouse, children, grandchildren, or other loved ones you wish to provide for in the event of your passing, it’s vital to include IHT planning in the process of preparing your will.
What is included in inheritance tax?
Inheritance tax is typically applied to all estates worth £325,000, or more. Your estate encompasses all of your assets, such as:
- Money, including all bank accounts in your name, company shares, and investments
- Property, including your residential home (if it is in your name only), second homes, and any rental properties you may own
- Possessions, which are of significant enough value to be included in your will (for instance, cars, jewellery, and other high-value items)
At the time of your death, your entire estate will be brought into consideration, and inheritance tax will be applied to all assets over the £325,000 threshold. At the time of writing, the standard IHT rate in the UK stands at 40%.
When is inheritance tax payable?
Inheritance tax must be paid no later than six months after an individual’s death, or HM Revenue & Customs will begin to charge interest on the amount. Interest will only be charged on late payments, which is why it’s advisable to pay at least some of the amount due before six months has elapsed from the date of death.
Payments on certain assets, such as property, can be made over a longer period of time (for instance, a 10-year span), but this means that the final amount of tax payable will continue to accrue interest. If you are concerned about inheritance tax, we highly recommend speaking to an advisor.
At the Wills, Tax & Trusts Group, we have an expert team of financial advisors on hand to support you in all issues relating to IHT. You can submit an enquiry via our Contact page, and a member of the team will be in touch shortly.
Who pays inheritance tax on an estate?
The executor of an estate is the one responsible for ensuring inheritance tax has been paid. Once they have received a grant of probate, the executor has accepted the task of administering the estate, which includes making arrangements for the inheritance tax to be paid.
Many executors find it helpful to seek financial planning advice, in order to make sure the estate is administered properly, and all the relevant legal processes have been adhered to.
Who is inheritance tax paid to?
Inheritance tax is paid to HM Revenue & Customs (HMRC), which is the government department which oversees the collection of taxes, amongst other things. Payments to HMRC can be made online, or by other forms of bank transfer, and will normally be arranged either by the executor of a will, or the administrator of the deceased person’s estate.
Are houses included in inheritance tax?
Houses and other property are included in the final value of a person’s estate. Therefore, they will be subject to inheritance tax, if the total value of the estate exceeds the £325,000 threshold.
Does making a will avoid inheritance tax?
Leaving a last will and testament to ensure your assets are distributed appropriately is a vital step (unless you wish your estate to be distributed according to intestacy rules). However, it doesn’t mean that your estate won’t be subject to inheritance tax, if it is valued above £325,000.
The only way to avoid paying unnecessary taxes and fees on your estate, and diminishing the legacy you leave to your loved ones, is with careful inheritance tax planning alongside a trusted financial advisor. Speak to a member of the Wills, Tax & Trusts team today, to find out how we can help you with inheritance much more.
Wills
The majority of people give more thought and time to planning their annual holiday than on considering how best to manage their personal affairs, this is particularly true with regard to time and consideration on how their Wills should be drafted.
Tax Planning
One is legally allowed to arrange one’s financial affairs so that one pays the minimum of tax. We have always advocated that clients look first at government approved avoidance schemes, such as ISA’s, Pensions, Enterprise Investment Schemes & Venture Capital Trust investments.
Lasting Powers of Attorney
Thinking and talking about what would happen if our faculties deserted us is uncomfortable. That is why it is important to consider Lasting Powers of Attorney. Imagine how much worse the situation would be for your family if you had a stroke, serious accident or dementia without making appropriate arrangements.
Residential Nil-Rate Band
The Residential Nil Rate Band Under the current Inheritance Tax regime, on death the first £325,000 of each individual’s net estate is taxed at 0%. This is known as the “nil-rate band” (“NRB”). Unless any tax reliefs apply, the rest of their net estate is then taxed at 40%.
