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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