Inheritance Tax Planning

  • Your Wealth for Future Generations

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The Importance of Inheritance Tax Planning

The popular perception that Inheritance tax only affects the rich is untrue. Without proper planning your loved ones could be losing out on huge sums in the event of your death. Putting in place an Inheritance Tax (IHT) strategy will mean that your family can avoid a hefty tax bill if they are to inherit your cash, home, investment or possessions when you die.

At Approachable Finance we offer sound advice and a friendly service for making the sometimes tough decisions about your estate. We always advise that the first step is making a will, before looking at ways that tax can be reduced.

  • Do you have an up-to-date will?
  • Do you know how much you’ll pay in IHT?
  • Have you considered Life Cover or Trusts?

We can help you pass your wealth down effectively. Contact us today for a NO OBLIGATION financial consultation.

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  • How Inheritance Tax Works
  • Inheritance Gifting
  • Whole of Life Cover + Trusts

How Inheritance Tax Works

Upon a person’s death their estate will be liable for 40% tax on anything above the £325,000 inheritance tax threshold. A person’s estate is basically everything owned in their name, anything jointly owned, gifts on which some benefit is kept back, such as homes passed on to a family member, and any other assets.

Assets liable for inheritance tax include cash savings, investments, property or businesses, vehicles and payouts from life insurance policies. The total value of assets is set against everything owed by the deceased, such as outstanding bill and mortgages, to arrive at a taxable figure.

FOR EXAMPLE: Assets worth £600,000 are left by the deceased. No tax is paid on the first £325,000, with 40% paid on the remaining £275,000. Leaving a tax bill of £110,000.

Who is Liable for Inheritance Tax

When a person dies their spouse or registered partner is exempt from inheritance tax as long as they live in the UK. If the deceased leaves their estate to the spouse or civil partner, they also pass on their £325,000 Inheritance Tax allowance. This can then be added to the spouse’s allowance, effectively doubling the threshold to £650,000.

Inheritance Gifting

Some money and assets that are paid into another person’s account are exempt from inheritance tax. Seeking professional advice about what is considered an inheritance tax free gift is vital to make the most of your estate’s value.

  • The annual exemption for gifts is £3000, and exemptions unused one year can be carried over to the following year, but not after that period.
  • The small gifts exemption also allows you to give up to a £250 gift annually to any number of people, though not the beneficiaries of the £3,000 annual exemption.
  • Gifts from after-tax income may also be exempt, if it can be shown that the giver can maintain their standard of living despite the gift.

Seeking specialist advice can help you plan a strategy for gifting part of your estate and make a big difference to your IHT liability. Talk to Approachable Finance today and avoid a larger than necessary tax bill on your estate.

Whole of Life Cover

You can insure against paying some or all Inheritance Tax by taking out the right kind of life cover. A “Whole of Life” policy can be set up specifically to be held in trust. This means that the premiums will be paid into the trust, and upon the policy holder’s death the trust will pay part or the entire inheritance tax bill.

It’s all too common that life insurance policies are not written ‘in trust’ and bereaved families end up having to pay large IHT bills. Talking to Approachable Finance can help put an Inheritance tax planning strategy in place that means your family don’t miss out on their rightful inheritance.

Trusts

Putting money or property in a trust can be an effective way of limiting IHT liability. When you set up a trust, a legal arrangement is made to put some of your cash, property and investments in the hands of another person, usually a solicitor or family member, for the benefit of a third person. As you are no longer the legal owner of assets in a trust, they won’t normally be included in the calculation of your inheritance tax bill

There are a number of different trusts available to UK residents, each with different rules on IHT, Income and Capital Gains tax. Setting up trusts can be a complicated process. Talking to a financial advisor at Approachable Finance ensures that you make the right choices to maximise what you leave behind.