Inheritance Tax (IHT) is a tax on your estate, i.e. your money, property, and possessions, that occurs when you die. Today’s standard nil-rate band is £325,000 per individual. Anything above this number is charged at 40%. So, if your estate is valued at £400,000, for instance, you’ll be charged £30,000 in IHT. Today’s increasing housing market means that more and more estates are falling into this scope, affecting people who may not even consider themselves “wealthy”.
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Planning for IHT has become more prevalent with so many more people falling under its scope. Families face huge tax bills that will significantly impact the inheritance passed down, without proper proactive strategies in place. Planning to mitigate IHT is almost always about balance. On one hand, you want to minimise your exposure to tax while on the other hand, you want to retain enough for your own lifetime needs.
While IHT can be steep, there are several ways a family can pass on more wealth. Gifting is a popular way to reduce the IHT burden, as is setting up life insurance plans, which can provide beneficiaries with funds to pay inheritance tax without reducing the estate. Trusts are another popular strategy to reduce the taxable estate while also controlling who receives what, when. All these strategies will be explained to you in detail within the context of your estate by our experts.
Funds from your estate are used to pay IHT when it exceeds the value of £325,000. It is the responsibility of the person managing the estate to pay the bill. It is the duty of an executor to arrange IHT payment for people with a will.
Inheritance tax needs to be paid by the end of the 6th month after the death of the individual. HMRC will start to add interest to the overall amount if it is not paid within this timeframe.
A trust is one of the few ways that someone can reduce inheritance tax, as long as the asset stays in the trust and remains in the interest of the intended beneficiary.
A lot of gifts made while alive do not come under the IHT remit, especially if they are gifted seven years before your death. It is important, however, that you do not benefit from that gift, or it may no longer be registered as such.
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