Estate planning & inheritance tax
Ensure your loved ones are the main beneficiaries of your estate
Estate planning is an essential part of your overall financial plan. It helps you to understand how your wealth will be passed on. Our job is to ensure the biggest beneficiaries of your estate are your loved ones. For some, it makes good financial sense to start passing on assets whilst you are still alive. However, a dedicated insurance policy may be more suitable for others. We will tailor a solution that is suited to your assets and aspirations and ensure your will is properly structured. Inheritance tax (IHT) is one particular area of estate planning that often requires additional consideration and our expert advisers will help you to minimise the impact this can have on your estate. In certain circumstances, this reorganisation can also have the beneficial effect of reducing your overall income tax bill.
This tax is often regarded as unfair and can be particularly hard to accept due to the nature in which it comes in to play. However, inheritance tax is often referred to as a voluntary tax because there are a number of strategies that can be employed to mitigate inheritance tax liability. These range from accepted schemes to more contentious strategies, generally depending on the amount of tax potentially saved. Inheritance tax is a complex area and for this reason, it is often central to any sound financial plan.
When is inheritance tax paid?
Inheritance tax is most commonly paid on the transfer of an individual’s estate on death but can also be due on some lifetime wealth transfers. It is currently charged at a rate of 40% on the value of all worldwide assets, less any reliefs and exemptions, that exceed a ‘de minimis’ allowance (known as the nil rate band).
It is important to know if your estate is entitled to the residence nil rate band (RNRB) because it significantly affects the amount of tax you owe. If you haven’t planned for inheritance tax and your estate is above the threshold of the RNRB, you voluntarily pay 40% tax. The current thresholds are:
- over £325,000 if you are single
- £650,000 if you are married, widowed or in a civil partnership
Combating inheritance tax
A number of simple measures exist which can make a substantial difference to your inheritance tax liability. Taking a long term view to inheritance tax planning is essential to ensure you maximise the benefits of the exemptions and reliefs available to you. Key considerations include:
- making a will
- sharing assets
- making full use of IHT exemptions and reliefs
- pension funding using new flexible pension rules
- maximising the nil rate band and the new residence nil rate band
- making lifetime gifts
- ensuring beneficiaries have enough money available to pay any IHT liability