Inheritance tax is paid on a person’s estate when they pass away. In some cases, it may also be levied on trusts or gifts that were made while the person was still alive.
Some people believe that paying inheritance tax is inevitable – but with the right knowledge and a little forward thinking, it can be reduced or even avoided altogether.
Our estate planning specialists can help you navigate the various exemptions that could save you and your survivors thousands of pounds in the longer term. It’s our job to make sure your affairs are structured in such a way that means your beneficiaries are taxed as little as possible on your gifts and inheritance, and your family’s wealth is preserved.
How inheritance tax works
At the moment, inheritance tax is only payable if an estate is worth more than the Nil Rate Band. The limit is currently £325,000 for individuals, and £650,000 for couples with joint assets. Anything over these amounts will be taxed at a rate of 40%, but in some circumstances, exemptions and reliefs are available.
For example, if a spouse leaves everything to their partner upon death, it is possible to transfer the spouse’s Nil Rate Band to the survivor to avoid extra tax. Gifts to exempt beneficiaries – such as your spouse or civil partner, some institutions (such as universities and museums), qualifying UK political parties and qualifying charities – are also exempt.
As an individual, you can gift away up to £3,000 in any given tax year, without incurring extra inheritance tax. You may also be allowed to administer gifts of a higher value if you are contributing towards a wedding or civil ceremony; you are making maintenance payments to a partner or relative who is dependent on you; and/or you have arranged a Potentially Exempt Transfer (PET) and you do not pass away within 7 years of the transaction taking place.
How can you mitigate inheritance tax?
Our estate planners can help you can reduce the amount of inheritance tax that you need to pay on your estate by:
• Making sure you have an accurate, well-planned will in place
• Planning your exposure to inheritance tax, so there are no unexpected fees later on
• Transferring your assets to your loved ones through the prudent use of lifetime gifts
• Creating a tax-efficient fund that ensures your beneficiaries can meet their inheritance tax liabilities, without cutting into their wealth
• Covering any long-term care costs by setting up an appropriate Later Life Planning Scheme