Posted on 20.10.15 by Tasoula Addison
With house prices on the rise again at a rapid rate, more and more homeowners are being shunted above the nil rate inheritance tax threshold. In simple terms, Inheritance Tax is the tax a person has to pay on their entire estate when it exceeds £325,000.
An individual’s estate is everything that they own, such as their property, possessions and money. When an entire estate added together is worth more than £325,000, a tax rate of 40% applies for everything over that value.
A Changing Threshold
Inheritance Tax (IHT) legislation is an area that is changed regularly by governments to appease their voters. The 2015 summer budget gave plans to increase the current IHT nil rate allowance to £500,000 per person by 2020. This allowance change is to be phased in from 2017, but it won’t be applicable to everyone. It has been labelled as a “family home allowance” with the goal of allowing families to pass on their main residence to their children without being taxed. Potentially, in 2020 a married couple may be able to pass on their £1 million property to their children without paying any IHT at all.
The proposed legislation surrounding the IHT changes is complex, therefore it is essential that you take advice to see whether this extra allowance is application to you. If not, your IHT threshold will remain at £325,000 per person or up to £650,000 for married couples or those in a civil partnership.
With all this in mind, I’m sure you are wondering if it is possible to limit IHT or avoid it altogether…with some forward planning there are several ways to protect your assets and reduce your bill.
Make sure you have a valid and up-to-date Will
An incredible 65% of UK adults have not made a Will. If you don’t make one before you pass away your estate will be governed by the intestacy rules, which means they specify who gets what and not necessarily how you hoped your possessions, money and property would be allocated.
The second aspect to this is to make sure your Will is current and up-to-date with your life. We go through many stages in our lives where family circumstances change and significant milestones happen, such as marriage, having children, grandchildren, divorce and even death. It is important to adjust your Will to reflect these life changes; if you don’t family issues can arise later in life. At Gorvins we recommend reviewing your Will every 3-5 years.
List your assets and their worth
Sitting down and analysing your assets, such as home, car, savings, investments, insurance policies, valuables, pensions etc is the only way to get a true reflection of your likely IHT exposure and your worth. It will also help you decide what there is to leave and who you want to give it to in your Will.
The power of a Trust
Many people take out life insurance to help their families when they are no longer here, but make sure this is written into a trust. If you don’t do this, the lump sum of your life insurance policy will fall within your estate and under IHT rules. It could create a big IHT bill for your family and be much less effective than you hoped it would be. Our Wills, Trusts and Probate experts can explain all of this to you.
Lighten your tax by making gifts now
Making lifetime gifts to your children or grandchildren can help substantially in reducing a potential IHT bill. Making regular gifts from excess income or capital gifts of up to £3,000 per year are just two ways to make tax free gifts. It is possible to make larger gifts without incurring inheritance tax so long as you survive the gift by 7 years…if you survive it by more than 7 years then it will fall outside of your estate. At Gorvins we can discuss the various options with you and advise on the best course of action in your circumstances.
Use a Trusted Professional
It is possible to try and ‘Do It Yourself’ when it comes to IHT and Wills. Using a cheap Will Writer or a DIY kit can be tempting but it is likely than you’ll be leaving your family with a huge mess to sort out and a big bill to pay. I see so often a family in a bitter feud following the death of a loved one, because a Will had been made but was not valid, it was not drafted correctly or simply there was no Will in place at all.
Using a trusted and professional solicitor will explain all your options and detail exactly how you can plan for your future to protect your family and loved ones in the precise way you would want to. It is vital to use the services of a professional e.g. solicitor, accountant, financial advisor. What may cost hundreds of pounds to begin with can save your family thousands in the long run.
To ACT ON IT today give our Wills, Trusts and Probate team a call on 0161 930 5151. You can also email us: email@example.com or fill in our online contact form – whatever the easiest option is for you.