In a recent post, we wrote about Why Everyone Needs to Think About Inheritance Tax. If you’re not sure what Inheritance Tax (IHT) is, that’s a good place to start.
To recap, IHT is a tax on your estate (the property, money, and possessions) once you’ve passed away. You might be more familiar with its rather macabre unofficial name: the Death Tax.
Why do we want to avoid it?
The vast majority of us don’t want to pay IHT for one very simple reason: We’ve worked hard in life to provide for our loved ones, and during a time of grief, the government want to take a big chunk of our assets & money. In short, it just doesn’t seem fair.
What’s more, we tend to put off thinking about IHT, because the reality just doesn’t bear thinking about in the first place. Dealing with potential IHT liabilities means dealing with our own mortality. That’s a difficult discussion to have with your loved ones, let alone your accountant.
How is IHT calculated?
The standard IHT Tax rate is 40%. And it’s only charged on what’s above the tax-free threshold.
Example: Your estate is worth £500,000 and your tax-free threshold is £325,000.
The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).
In this case, you could be facing a bill of £70,000.
What can we do about it?
While we may not like the idea of having to pay it, the fact is our families will face an Inheritance Tax bill at some point after we’re gone.
Thankfully, there are a number of lawful options available to help reduce your IHT liabilities. These include:
- Making a gift to your partner.
- Putting things into a trust.
- Leaving something to charity (reduces the IHT rate to 36% if you leave at least 10% to a charity).
- Taking out life insurance.
- Making a will.
Read More – We detail a number of ways (five, to be precise) in which you can secure your financial future here: The Five Steps Towards Effective Wealth & Financial Planning
Not sure where to start? Speak with Ten Forward
There are a mind-boggling number of allowances and reliefs available for the dreaded Inheritance Tax, however, each one is complicated by rules and principles written into the multiple editions of the Finance Act. Needless to say, it’s tough to know just where to start planning.
Making sense of these requirements takes a professional with the necessary experience and access to the legislation, interpretation, and case history.
And taking advantage of these opportunities requires a proactive level of planning, often years in advance.
Here at Ten Forward, we have the experience, the processes, and – most importantly – the desire to help our clients plan for the future, both for them and their families.
We know no-one likes talking about their mortality. However, we try to make that conversation a little easier by offering the peace of mind that your loved ones won’t need to carve up your assets just to pay an unexpected tax bill.
If you’re ready to start planning by undertaking a brief review of your current financial position, contact one of our friendly advisors today.