Commonly asked questions about Inheritance Tax Planning
What exactly is Inheritance Tax?
Inheritance Tax principally is tax paid as a result of your death on all your estate: house, savings, car, antiques, household items, life policies, cash lump sums, inheritance from parents etc. The first £312,000 is tax-free. Everything over £312,000 is taxed at a rate of 40%.
So, on a total estate of say £400,000, there would be a tax bill to be paid of over £35,000 . This is money that you will not be able to leave to anyone except the taxman! What could your children do with this (or even more?).
The very bottom line is whether you would rather give your hard earned money to the taxman or to your children.
How can you avoid Inheritance Tax?
There are a number of ways to avoid Inheritance Tax. Here are some of the most popular:
- Small gifts of money can be given away annually to reduce Inheritance Tax.
- A Discretionary Will Trust which uses two people's nil rate bands instead of just one, can save up to £125,000. This can be used for both spouses and partners but sadly not for singles or widows/ers. If however, your partner has died in the last 2 years, you can do a Deed of Variation and make/change a Will to make it tax efficient (as long as all the beneficiaries agree).
- Married couples and civil partners have a special concession. They can also use the left over allowance of their deceased partner effectively doubling the Nil Rate Band from the current £312,000 to £624,000.
- For larger estates, say over £624,000, there are a number of new ways to save even more IHT than ever before and in some cases, completely wipe out Inheritance Tax altogether. We can make sure this money goes to the children and not to the taxman.
- A Inter Spousal Transfer: married couples can in time, save up to the whole value of their main residence by each selling up to 50% of it to their spouse and effecting a Deed of Gift of the debt created, to their children.
- Investment Trust: Gift up to £312,000 in funds to a special type of Relevant Property Trust which then acquires an income producing investment e.g. unit trusts. The income can go to the person who made the gift. After 7 years, the gift can be excluded from IHT.
- Lifetime Trust: Gift £312,000 to a Trust every 7 years and repeat every 7 years. Each such gift is outside of the estate after 7 years.
- Pilot Trust: There are a number of ways in which trusts can be set up in a persons life time to save Inheritance Tax for future generations.
- Sharing Ownership: You can gift a portion of your home to an "occupant" such as a child, niece, nephew etc. This could eventually fall outside the calculation for IHT.
- Life Insurance to pay the Inheritance Tax bill when you die. This covers the IHT liability but unfortunately can be quite expensive and ideally should be used if the other IHT saving methods do not "mop up" all the tax payable.
Is there a legal way to avoid Inheritance Tax?
There most certainly is! We at Xpress Legal Services have a number of legal ways to avoid a huge amount of Inheritance Tax.
We would welcome the opportunity to show you how to save this major tax bill (which would also dramatically affect your children).
