Planning for Inheritance Tax
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Estate Planning Solicitors for Inheritance Tax
Effectively planning your estate now and distributing some assets while you’re alive can save your beneficiaries from paying inheritance tax. The current rate of inheritance tax is 40% of the value of your estate in the event of your death. However, making transfers and gifts during your lifetime will reduce the tax to 20%, if at all, tax is liable. Certain gifts and transfers are exempt.
Transfers that reduce or, are exempt from IHT
Transfers made to a living spouse are tax-free, or if the transfer was made in full to a charity. However, if you transfer part of your estate to charity, the remaining is liable to a reduced 36% IHT.
A Potentially Exempt Transfer (PET) allows you to gift a lifetime transfer which will become exempt from IHT if you live for a period of seven years after the gift was made. If you do not survive the seven years, the PET is added to the value of your estate and taxed under Inheritance Tax rules.
PET’s must meet certain conditions that are subject to certain exemptions, therefore it is highly recommended that you seek legal advice on this to clarify your individual circumstances. One condition is that PET’s are made from one individual to another or an appropriate trust, therefore you cannot gift your assets to a business.
Gifts that are exempt from IHT
Annual gifts of up to £3,000 per year are free from IHT. However, if there were no such gifts made in the previous year, you can gift a total of £6,000 tax-free.
Weddings gifts can be made of up to £5,000 to children, £2,500 to grandchildren and great-grandchildren, and £1,000 to other individuals free of IHT.
Small gifts, or otherwise known as Christmas and birthday gifts can be made to the value of £250 to individuals free of IHT in each tax year.
Gifts out of surplus income can be made where your income exceeds your normal expenses. More simply, if you receive more net income than what you need to live on, you can gift this as a regular or habitual gift.
It is important to note that if your estate is worth under the value of £325,000, you will avoid paying inheritance tax altogether.
FAQ’s
What is inheritance tax?
Inheritance Tax (IHT) is a tax on the estate of a person who has died.
What assets are liable for inheritance tax?
The total value of the following is liable for inheritance tax:
- Your savings
- Possessions and property
- Pensions
- Any money or property you gave away during the seven years prior to your death (subject to exemptions)
Who is responsible for the payment of inheritance tax?
Whoever you name as the executor in your Will or whoever obtains administration of your estate will be responsible for paying inheritance tax. There are penalties and interest charges liable to not filling in the correct information on the necessary tax form, so get in touch for advice on what you need to declare.
