Inheritance Tax – Planning for the inevitable

Inheritance tax can cost loved ones hundreds of thousands of pounds in the event of your death. Which means that it’s better to plan for the inevitable, than be caught out by a large tax bill at a difficult and upsetting time.

Don’t ignore the inevitable – plan for the future

From our experience, inheritance tax is something that many people ignore. It is understandable – none of us likes to consider our own demise. Likewise, family members often avoid the subject too, as no one wants to appear too grasping over their inheritance.

Although understandable, avoiding the issue is never advisable. Which is why dealing with inheritance tax issues as early as possible is a simple and effective way to secure a better future for your loved ones. Because with sound financial advice, it is possible, legally, to make sure that you don’t pay more than you should.  

What is Inheritance Tax?

“The only certain things in life are death and taxes,” Benjamin Franklin. When it comes to inheritance tax Benjamin couldn’t have said a truer word. The current situation is that when we die, the Government assesses how much our estate is worth, then deducts debts from this to give the value of our estate.

The assets valued include: cash in bank, all investments, all property or businesses owned, vehicles, payouts from life insurance policies.

How much will my estate have to pay?

If the current situation remains the same in the current tax year, 2017-18 (and following the result of the recent General Election it seems that it will)  you will be allowed to leave an estate valued at up to £325,000, plus the new ‘main residence’ band of £100,000.

This gives a total allowance of £425,000.

If your estate is valued above this allowance, it will be subject to a tax of 40%. This can be reduced by leaving 10% of your estate to charity, reducing the tax to 36%.

So, for example, if your assets are worth £500,000, your estate pays nothing on the first £425,000, and 40% on the remaining £75,000. This leaves a total of £30,000 in tax. Assuming you are not leaving anything to charity.  

If you have more than one property, this calculation changes.

As a large majority of housing is now close to or above this price bracket, family and loved ones could be facing a considerable inheritance tax bill.

Are there married allowances for inheritance tax?

Married couples and registered civil partnerships are favoured by current inheritance tax laws. Assets left to your spouse or registered civil partner are exempt from inheritance tax – provided they are living in the UK.

There are also additional benefits, as a partner’s inheritance tax allowance rises by the amount of the allowance you don’t use, meaning that together, a couple can leave £850,000 tax-free.

This allowance currently does not apply to unmarried couples. If you’re not married, but own assets jointly with another person, the situation can become highly complicated, especially where a residential property is involved.

If you are in this situation, there is action that you can take, but we recommend seeking financial advice first.

Can I give my assets as a gift?

Any money you give away before you die is usually counted as part of your estate. It will be therefore be subject to inheritance tax if you die within seven years of giving the gift. This means that early planning of how to pass on your assets is vital.  

Additionally, most gifts into trust are now subject to inheritance tax, even if they were made during your lifetime. It is here, again, that we urge specialist advice.

Get help and advice as early as possible

Inheritance tax is a huge area and one that many people refuse to consider. But there are options available to legally make sure your loved ones do not end up with a sizeable tax bill at a difficult time.

Our advice is simply to seek advice. Only by talking to professional independent advisors can you fully explore all of the options that might be available to you in your personal situation.

At Haven, we offer inheritance tax advice to clients seeking to secure the financial future of their loved ones. If you need help in exploring your inheritance tax options, don’t hesitate to get in touch with us.