Think IFA guide to ‘Inheritance Tax Advice’
What is inheritance tax?
It is a tax the government charge you on the value of your estate when you die.
If the net value of your estate is below the IHT threshold set out by the HMRC then no tax will be paid.
If the net value of your estate is over the threshold then 40% of the amount which is over is liable for inheritance taxation.
With careful inheritance tax mitigation planning you could potentially save a large amount of money on your IHT bill.
This is a generic calculation that does not take into account your specific individual circumstances. The rates & allowances used relate to the 2013/14 tax year
But tax has already been paid on the assets?
A lot of people disagree with inheritance tax and feel it is unfair as any money earned to pay for assets has already been taxed with some form of income tax.
As unfair as that may seem, the governments reason for inheritance tax is to try and help redistribute the wealth for the benefit of everyone and to try and avoid perpetuated inherited wealth.
How to avoid inheritance tax?
Everyone has an obligation to pay their taxes but by working with an independent financial / tax adviser they can help save you money and potentially reduce your inheritance tax liability by using legal and robust mitigation schemes such as an asset protection trust.
By taking professional advice and exercising an inheritance tax mitigation scheme you can help ensure that your family and loved ones receive the full value of your estate when you are gone.
What happens if I am married?
In October 2007 the rules for inheritance tax changed which allowed married couples or civil partners to make use of each others allowance.
What this means is that if you leave your entire estate to your married / civil partner then it is highly likely that none of your inheritance tax allowance will be used so therefore when the second partner dies, their IHT allowance is the accumulation of both allowances.
For example, if the current IHT allowance is £325,000 then the second partner would have an allowance of £650,000.
If you are at all unsure about your iht then please speak to an independent financial advisor who can offer independent & professional inheritance tax advice to help determine your liability.
Ways to reduce your inheritance tax bill
There are a few ways you can reduce your IHT liability such as:
- Put Your Assets Into a Trust
The use of a trust has many benefits, especially with inheritance tax mitigation.
By placing your assets into a protection trust, they are owned by the trust and you become the beneficiary of that trust. This way, when you are gone and the assets are passed down to your loved ones, because they are in a trust, they are not included in your estate when calculating your inheritance tax bill / liability.
For further details about the protection of your assets and how a financial adviser can help you with your inheritance tax mitigation please visit our asset protection trust guide.
- Equity Release
For a lot of people, their wealth is tied up in their home. By releasing some of this equity by selling part of your home or taking on a ‘lifetime mortgage’, you can receive a lump sum of money to spend on yourself or passed on to your family.
When you die, the remaining value of the mortgage (or whatever percentage of your home you no longer own) is deducted from the value of your estate.
For further details about releasing equity in your home please see our equity release guide.
- Have your life insurance policy written in trust
When you put a life insurance policy into trust, the pay out does not form part of your estate and is therefore not liable to inheritance tax.
Another benefit is that the policy will not have to go through a lengthy and potentially expensive probate process and your beneficiary will have access to the funds much quicker.
What should I do now?
If you have any worries or concerns over your inheritance tax liability or would like a friendly, no obligation chat with an independent tax adviser about inheritance tax and how to protect your assets and wealth then please fill in the enquiry form below.