Archive for the ‘Inheritance tax’ Category

Planning For The Inheritance Tax

Posted by Janay Harris

There are many ways to limit the tax implications from the Inheritance Tax (IHT).  This article will explore the means through which the tax can be minimized or even avoided all together.  Children, charity and tax shelters are all viable means to limit the IHT on your will.  No one wants to give 40% of what they worked their entire lives for away in taxes.  Learn what you can do now to limit the tax bill later.

Planning for the IHT

At current rates, anyone worth more than £325,000 will be subject to IHT as of the 2017/2018 fiscal years.  This means that if you own a house and have even a limited savings, life assurances, and other assets, then there is a good chance your estate will be vulnerable to the IHT.   Even gifts that you make during your lifetime might be liable if they were made within seven years of your passing.


What is the IHT?

When a person living in the UK passes away, their personal wealth is subject to the IHT in conjunction with all of the gifts and bequests that the individual made in the seven years prior to their death.  Even certain people not living in the UK can be taxed by the IHT as if they were living here.  The individual’s estate can be taxed up to 40%, but there is minimal relief due to a sliding scale for any gift made between 3 and seven years of death.

What You Need to Know About IHT

Before you can begin to understand the IHT, you need to know the current state of your assets and how they might change in the future.  You need to know your own finances and your overall financial security.  Finally, you need to know or have an idea of the future needs of your family or your intended beneficiary.

Your Finances and Security

As you assess your current finances, you need to make sure that you and any spouse are taken care of and have plenty of assets.  This need of assets will become even more important as you enter the retirement phase of life.  You should not be worrying about giving away assets if you are going to need them.

The Needs of My Family

Your family is very important to you if you are looking into how to leave them the most money and assets possible, but how much control do your kids need of finances that might be transferred to them?  In the chance you die first, you should consider how much money to leave to a spouse so they are taken care of.   All of these considerations and more would be covered by a proper Will and Testament that will be executed upon your death.  Even the assets of your parents and elderly family members need to be considered in your financial planning.

Will the IHT Impact My Business?

If you control a business and own business related assets, then you can expect that a business property relief between 50 – 100% can be utilized.  Agricultural assets that are very similar to the relief expected for another business.

Can You Reduce Your IHT Liability?

In short, yes, you can reduce the IHT Liability.  However, there are many different ways this can be accomplished.  First, keep in mind that smaller gifts made during your lifetime can be completely exempt.  Second, assets given to your spouse and civil partner can potentially avoid the IHT liability.  Annual gifts up to £3,000 for the 2017/2018 Fiscal Years can be exempted as well as an allowance for a gift up to £250 from the previous year if it was not claimed in the gift year.

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Inheritance Tax

Posted by Janay Harris

Data from HMRC has shown a rise in Britain’s inheritance tax bill, which is at an all-time high. Families are paying in excess of 2bn since March this year.

However, despite the problems faced by HMRC for the 22.9 per cent increase in receipts over three months, there is an expectancy of an additional increase of £6.2 billion by 2020/21. Families cannot be complacent with this matter, as now is the time for advice and financial planning.

Other than Inheritance Tax (IHT), there are various other complex forms of taxes. The prospect of paying an amount up to 40 per cent in taxes on their assets that are left behind, which for the older generation is difficult to come to terms with. Many children and grandchildren are ill-equipped with dealing with the nuances of IHT. Therefore, the earlier you start thinking about it, the better and less damaging it will be.

The HMRC figures are evident that there is an increase in the amount of families, that have to deal with IHT due to soaring house prices, while the rise in stamp duty costs are making elderly people contemplate downsizing. Families can take steps to mitigate the impact of this, by getting advice and creating a suitable plan.

The earlier you start thinking about IHT, it becomes easier and less damaging, and creates more options. This does not mean that it is too late, if you leave it late. There are still options available, however you will be more limited.

New rules are introduced early this year and provide relief, such as £325,000 threshold and the new ‘residence nil rate band’ (RNRB) which are transferable, as both tax-free allowances can be passed onto your spouse when you die.

The RNRB is increasing to £175,000 in 2020/21, which means married couples could eventually pass £1m to their children and grandchildren without attracting IHT.

However, the reliefs often come with the caveats and unless you understand what those are, you may risk it by making assumptions.

If you do not consider yourself to be wealthy, you may find the value of yourself or combined estates exceeds the tax-free thresholds.

Anything that reducing the potential IHT bill is worth considering. Estate planning can also help you pass on your wealth to your designated beneficiaries and reduce your taxable estate.

There is plenty that needs to be done to maintain a potential IHT bill to a minimum:

1. Use the allowance for individuals to give gifts up to £3,000 a year without incurring any IHT.

2. Individuals can pass larger amounts of money free of IHT as long as they live for seven years after making the gift.

3. Take in to account of the normal expenditure of the income rule, if you give gifts out of your income and it does not affect your standard of living, they are exempt from IHT and will have no upper limit.

4. Spread your giving over a number of years, rather than a lump sum.

5. Do not give away too much too soon, as it could result in dependency on your children.

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