Inheritance Tax (IHT) is a tax added to the estate of a deceased person, including all their property, possessions and financial assets.
Depending on the value of your estate, you may not always have to pay IHT. For example, those with estates that have a total value of under £325,000 do not usually have to pay IHT, however it is compulsory to report these assets to the government.
The current standard rate of IHT is 40%, which is charged on the portion of your estate that comes in over the nil-rate band of £325,000. For example, if your estate has a total value of £1 million, you would only pay tax on the assets worth £675,000, which would total a tax of £270,000.
The amount of IHT that you pay can be reduced through careful succession planning. Making a Will is the simplest way to avoid paying copious amounts of IHT on a large part of your estate. If you don’t make a Will, thousands of pounds from your estate could end up being spent on IHT.
You can avoid paying IHT if you bequeath all assets above the £325,000 threshold to your spouse or civil partner, a charity or a community sports club. Also, if you leave your home to your children or grandchildren, your tax-free threshold will increase to £500,000. Another way to reduce IHT in advance is to give away up to £3000 a year as gifts.
There are many different ways to legally structure your succession plans to ensure that you pay the minimum amount of IHT, so it is worth speaking to a lawyer to find out the best options for you.
If you have any questions about Inheritance Tax and how to make provisions for it in your succession plans, please feel free to contact our Private Wealth & Succession Planning Senior Associate, Hardeep Nijher TEP, on email@example.com.