10th May 2017
Is it time you started thinking about planning ahead to minimise inheritance tax? Despite recent changes, this tax can still significantly deplete the amount of money you can leave to your family, friends or nominated organisations, so it makes sense to understand how you can keep the bill down.
For some people, the dread of the inheritance tax (IHT) bill may have been lessened by the announcement that from April 2017, there is an additional £100,000 allowance for each person when they are passing a primary residence to children or grandchildren. This allowance will increase to a top level of £175,000 by 2020. This is good news for some, but doesn’t affect everyone, so it’s still important that you look at all your assets and how you can manage them.
We’ve highlighted some of the most common ways that people manage their IHT planning. Everyone has different assets and different plans for the future, so you should always ask for professional advice when you’re ready to approach your own IHT, but this will give you some idea of what can be done.
Make a will
This is a quick and easy way to make sure you make things as easy as possible for those left behind. Dying intestate is complex and expensive, and your assets may not go to the people you want them to go to. Whatever your age, you should have a will in place – they are relatively straightforward to prepare and it could save a lot of hassle and heartache in the future.
Gifts that are given seven years or more before your death are exempt from IHT. You can also give gifts of up to £3,000 in any tax year, with no IHT liability, and you can carry forward this amount for one year, so you could give £6,000 in a single tax year if you have not used your allowance during the previous year. You can also make gifts worth £250 or less to anyone in any one tax year, and wedding gifts are also exempt, up to a certain amount.
The most important thing to remember about gifts is that HMRC will want to see records of them. So if you are planning to limit your IHT liability in this way, start keeping records now, and let your executors know where those records are.
Many people choose to put their assets into a trust of one type or another in order to limit the IHT burden later on. There are several ways you can do this, and it’s advisable to talk to a tax professional in order to make sure that this is a good option for you, and that you choose the type of trust that benefits you in the long term.
If you have money to invest, ask for advice on those which offer some kind of IHT benefit. Again, this will depend on your assets and circumstances. You should also ask your adviser about your pension – if you die before the age of 75, there is no tax to pay on your pension pot, and after that age, your beneficiaries are only taxed at their marginal rate of income tax, which could reduce the tax burden significantly.