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Inheritance Tax Planning – Maximise what you leave behind

Introduction

Inheritance Tax (IHT) can be complex, but effective planning can greatly impact what you leave behind for your loved ones.

The best starting point is to seek quality financial advice.

A skilled Financial Adviser (FA) can examine your assets, consider your lifetime goals, and guide you in aligning your financial planning with your wishes for your beneficiaries.
(If you don’t know an FA, all our advisers have links with quality ones in your area that can help you.)

This helps minimise IHT liabilities and ensures more of your wealth is preserved for future generations. 💼

After that the use of Trusts after your death through your Will can be explored.

Future articles during May 24 will explore these in more detail.

 

Can Inheritance Tax be paid from the estate?

Yes, IHT is typically paid from the estate before assets are distributed to beneficiaries.

The executor or administrator ensures the IHT bill is settled.

This amount is usually deducted directly from the estate’s value.

 

How does inheritance tax work?

IHT applies to the estate (including assets like property, savings, and investments) of someone who has passed away.

The tax rate is 40% on the estate value exceeding the current nil-rate band (NRB), which is set at £325,000.

An additional residence nil-rate band (RNRB) may apply if the estate includes a primary residence passed to direct descendants.

 

When is it due?

IHT is due within six months of the person’s death.

If unpaid, interest may be added to the outstanding amount.

Executors can make payments on account to manage this liability.

This is why it’s important to ensure your Executors know what assets you have, so they can assess the estate’s value and make timely payments.

A valuation of the estate must be submitted before a Grant of Probate is given, allowing the distribution of assets.

 

Will IHT be abolished?

There’s no definitive answer, as it depends on government policy.

IHT remains a controversial topic, and various political parties have different views on its future.

Latest HMRC data reveals that a record £7.5 billion was collected in IHT in the 2023/24 year, representing a rise of 5.6%.

Here is a recent article on this very issue –

 

IHT hits record £7.5bn, escalating concerns over frozen thresholds – Today’s Wills and Probate (todayswillsandprobate.co.uk)

 

While we can’t predict whether IHT will be abolished, we can safely say it would leave a massive hole to plug, and it would surely have to come from taxation elsewhere.

For now, IHT is still in place, and planning strategies should take current laws into account. 🏛️

 

Are the IHT rules changing?

IHT rules can change with new legislation.

Recent changes include freezes to the NRB and RNRB until April 2028.

Staying informed on current regulations and considering professional advice for your Inheritance Tax Planning is crucial for effective planning.

 

What allowances do we get?

The NRB offers an allowance of £325,000 before IHT is applicable.

The RNRB provides an additional allowance, currently up to £175,000, if a primary residence is passed to direct descendants.

Married couples and civil partners can transfer unused allowances from one partner to the other, potentially doubling these allowances. 💰

 

How are gifts to charity assessed?

Charitable donations are exempt from IHT. This means that gifts to charity can be deducted off the gross value of your estate before calculation for IHT.

If at least 10% of the net estate’s value is donated to charity, the IHT rate on the remaining estate is reduced from 40% to 36%.

This provides a significant incentive for philanthropic giving.

 

What simple things can I do each year?

You can utilise the £3,000 per person, per tax year gifting allowance.

This annual exemption allows you to give away up to £3,000 each tax year without the gift being subject to Inheritance Tax.

Small gifts of up to £250 per recipient per tax year are also allowed, and these can be given to an unlimited number of people or organisations, provided they aren’t included in the £3,000 annual gift.

The £3,000 allowance can be carried forward for one tax year if not used, though the £250 exemption cannot be carried forward.

Like to have a chat about this?
Here is the link to our ‘Beacons’ page to find the closest to you.
Then contact them direct or use the contact form and we will be in touch –

Contact / About Us – Beacon Advice

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