Last Updated on 12.7.16 by Michael Smoult
An article in the papers recently explored inheritance tax and the impact it can have on wealthy individuals. The article focussed on the entertainer Sir Bruce Forsyth who, with nine grandchildren and three great grandchildren, wants to ensure that he is able to share as much of the wealth with them as possible. He explained his frustration at the amount due to be taken from his estate in inheritance tax, explaining it as ‘a bit over the top’.
Inheritance tax is payable on money or possessions passed on when you die. Everyone has a tax-free inheritance tax allowance of £325,000. This allowance has remained the same since 2010/11 and is known as the ‘nil rate band’. Everything over the £325,000 inheritance tax threshold is charged to inheritance tax at 40%.
Charities and spouses are exempt beneficiaries and it is always possible to avoid an inheritance tax charge if you leave your estate to your spouse or charities.
If you leave your entire estate to your spouse there will be no inheritance tax to pay on your death. Since October 2007, you are able to transfer the whole of your unused nil rate band to your spouse if you have not used it. This means that on your spouses’ death they will have their own nil rate band and your nil rate band (currently a total of £650,000).
Making gifts is another way to reduce your final estate value. Each year you can give away £3,000, with these gifts falling outside your estate immediately. You can also gift larger sums of money but these will stay within your estate for inheritance tax purposes for seven years. If you die within 7 years of making the gift the value of the balance is added back to your estate for inheritance tax purposes. Assuming you live for seven years these gifts fall outside your estate and avoid IHT.
If you plan ahead there are ways in which you can reduce your inheritance tax bill. Simple actions can save you £100,000s and can in turn avoid depriving your family of capital. Even drafting a simple will can save inheritance tax on your death.
As a firm we have a great deal of experience in dealing with these matters and we fully appreciate the importance of planning ahead. If you would like to discuss any aspect of inheritance tax planning or will preparation then please do not hesitate to contact one of our experienced Solicitors who will be more than happy to help you and guide you through the process.
For more information about Wills, Trusts & Probate, please contact a member of our team on 0161 930 5151