Inheritance Tax

What is Inheritance Tax?

How much will I pay?

Can I avoid IHT?

Who will pay the bill?

Can I reduce the amount?

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Inheritance Tax

The Governments Death Tax (Inheritance Tax) is becoming an issue for more and more families, largely due to house prices increasing at a high rate over the last fifty years. Are your loved ones about to lose thousands of pounds to the government?

Many people are now finding their assets are creeping over the inheritance tax threshold and using an inheritance tax calculator they are finding the value of their estate is now over the nil rate band (amount tax free), thus causing a greater liability of inheritance tax than first thought.

IHT is paid at forty percent and can cost your estate thousands of pounds when you die, however, with expert planning from The WillMaker Group we can legitimately reduce or negate this tax, meaning you can pass on assets that you have worked hard for all your life to your family as you’d intended.

Who makes us pay Inheritance Tax (IHT)?

Unfortunately dying can be expensive if planning has not been put into place. IHT is payable on all assets, including cash, savings, property and investments when you pass away and on some gifts you have made whilst alive. This is commonly known as a death tax.

How and when is tax paid?

After a loved one has passed away, the executors will have to administer the estate and calculate if the estate is liable for inheritance tax. Your Executor will be liable to pay the inheritance tax at 40%. Only when this has been paid can the Grant of Probate be issued, which then allows the executor to bring together all of the assets and distribute them as per the wishes of the will, or if no will then assets will be distributed as per the laws of intestacy.

IHT Calculator? What are the limits?

 If you are single, then the current threshold before you pay inheritance tax (known as the Nil Rate Band) is £325,000 and for married couples (or civil partnerships) this is £650,000. In many cases, on the first death of a spouse, no tax will be due and the Nil Rate Band will be transferred to the surviving spouse and can be used on their death. So anything over these amounts may be taxed at 40%.

Because of rising house prices, the government introduced an additional nil-rate band when a residence is passed on death to a direct descendant (children or grandchildren).  

How does the main residence nil rate band work?

The residence nil rate band will only apply if your main home is passed down to a child or grandchild (including step, adopted or foster children).

In simple terms, the new nil rate band gives you an extra £175,000 tax for single persons (or divorced), giving a total of £500,000 inheritance tax free and an extra £350,000 for married couples therefore giving a total allowance of £1million.

Please note that if you have an estate of over £2million pounds then your residence nil rate band will be reduced therefore increasing your inheritance tax liability and if your estate is worth more than £2.7million then all your residence nil rate band allowance will be lost.

Can I gift assets to reduce IHT? (inheritance tax gifts)

Many parents/grandparents give some of their assets to loved ones whilst still alive. These are called ‘potentially exempt transfers’. For these assets to be excluded from your estate and be tax free, you must live for seven years after passing them to your loved ones.  You can make gifts of up to £3,000 per annum which would immediately come out of your estate and not be liable for inheritance tax. If you would like to know how to reduce or avoid inheritance tax on property then speak to one of our Experts (mainly used for rental portfolios).

So what can I do to minimize my IHT liability?

  • Use your gift allowance of £3,000 each year.
  • Put assets into trust (settlor excluded asset protection trust).
  • Life Assurance to cover any IHT liability.
  • Make a gift to charity in your will.
  • Certain Investments can be used to take assets outside of your estate.
  • Most importantly, speak with an expert from The WillMaker Group about Inheritance tax reduction.

If you would like to speak to one of our experts about reducing your tax liability, call us on 01603 927273