Inheritance Tax Planning

What is Inheritance Tax Planning?

Inheritance Tax is paid if a person’s estate (their property, money and possessions) is worth more than £325,000 when they die. This is called the ‘Inheritance Tax threshold’. There are different thresholds for previous years.

The rate of Inheritance Tax is 40% on anything above the threshold. The rate may be reduced to 36% if 10% or more of the estate is left to charity. Usually the ‘Executor’ of the will or the ‘Administrator’ of the estate pays Inheritance Tax using funds from the estate.

An estate is exempt from Inheritance Tax if the deceased left everything to their husband, wife or civil partner, who lives permanently in the UK. Married couples and civil partners can give any value of gift to each other during their lifetime without Inheritance Tax being due on them. This is known as ‘spouse or civil partner exemption’.

If someone’s estate is less than the Inheritance Tax threshold of £325,000, the remaining threshold can be transferred to their husband, wife or civil partner’s estate when they die – even if they remarried. This means the surviving partner’s estate can be worth up to £650,000 before any Inheritance Tax is due. The transfer is made when the surviving husband, wife or civil partner dies and this calculation is taken into consideration by the Executor of their Will or the Administrator of their estate when they work out how much it’s worth.

An Executor is a person named in the Will to deal with the estate – there can be more than one. An Administrator is the person who deals with the estate if there’s no Will. Trustees are responsible for paying Inheritance Tax on trusts. If you’ve received an inheritance, you usually don’t pay Inheritance Tax. There are some exceptions. You may still have to pay other taxes.

You may have to pay Inheritance Tax if someone who died gave you a gift while they were alive.

Estate Planning

Tens of thousands of people every year have their bereavement compounded by the fact that their loved ones left no instructions on how their estates should be dealt with in the event of their death. Estate Planning is about looking after the assets you own and ensuring that with careful planning these are protected.

Planning your estate can involve many different aspects from basic Wills to Will Trusts and Lifetime Trusts. Modern families can have complicated dynamics and there is often a potential for conflict in the future if relationships break down or after the death of a client.

There are potential problems which can stand in the way of your legacy passing down:

  • Intestacy
  • Protection against care fees
  • Protection against children from being disinherited by a step-parent
  • Protection of your legacy from getting eaten up by a divorce settlement
  • Controlling a legacy after your death (gifts with strings)
  • Avoiding legacies being gobbled by debt
  • Preventing your estate passing to a new spouse

Plan effectively for the future

Plan your estate and save Inheritance Tax.