Estate Planning: Have you considered Inheritance Tax?
Many individuals will choose to pass their assets down to their children, relative or friend when the time is right, and some may want to start this process as they get to retirement age. Estate planning involves planning how to pass these assets on in the most effective way. Receiving professional advice on inheritance tax is something we would always recommend when it comes to estate planning to ensure that valuable inheritance reliefs are not lost.
What is Inheritance tax and how does it work?
Inheritance tax is a tax placed on the estate (property, money and possessions) of someone who’s died, with the aim of redistributing income. The standard rate of inheritance tax stands at 40% and is charged on the part of the estate above the threshold of £325,000. However, if the value of your estate is less than the nil rate band, or you leave everything above the threshold value to your spouse, civil partner or charity then you may not have to pay inheritance tax.
There are exceptions to the standard nil rate band. When the value of your estate amounts to less than £325,000, the remainder of your threshold can be passed onto your partner’s threshold when you die. Similarly, if you give away your home to your children or grandchildren, then your threshold can increase to £500,000 This means an increased value of your estate becomes tax free.
Some gifts and property are exempt from inheritance tax including charitable donations, and relief might also be available on specific property types such as farms. Agricultural Property Relief (APR) is a relief from Inheritance Tax and is available on gifts of land occupied for the purpose of agriculture, together with appropriate buildings and farmhouses used in conjunction with the land. APR is usually discussed at a time of death when the asset is being passed down to the next generation. APR is seen as government support for landowners and whilst APR does not stop all tax being paid, with planning you can reduce the amount of tax paid on transfer.
Can you reduce your inheritance tax?
Is your estate likely to be liable for Inheritance Tax? It is possible to reduce your inheritance tax bill, but this requires a proactive approach and extensive knowledge to be done successfully. One way this can be done though, is through gifting. Any gift that has been granted to an individual within 3 and 7 years of your death is taxed on a descending scale. This is known as taper relief. After 7 years the gift no longer becomes taxable allowing the entirety of that asset to be inherited by the individual. It is crucial to keep records of gifts you have given and when you have given them to ensure that your inheritance tax bill is generated correctly.
Estate planning can save a large amount of tax and there are many ways to reduce, manage and even eliminate an inheritance tax bill. By considering inheritance tax, you enable a higher value of your assets to be received by your loved ones. We want to help you leave an estate that is as tax free as possible. If you have assets and would like some accountancy support, get in touch today and we can help you with your inheritance tax planning.