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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