It is important to remember that you don't have to be
a millionaire or even slightly be rich for your estate
to be eligible for Inheritance Tax. Currently IHT is levied
on everything you leave over £255,000 for this tax
year and this includes
your home and car
your furniture and personal effects
your investments and savings
the proceeds of your life insurance
(unless under trust)
Most people nowadays are therefore liable for this tax
unless they plan positively, and quite legally, to defer
or avoid this responsibility.
The rate of Inheritance Tax is 40% for everyone. This
is equivalent to the highest current rate for income tax.
The tax is paid by those that inherit - and is deducted
from the value of the estate on death - so inheritance
tax is relevant whether you stand to gain an inheritance
or you plan to leave one.
Also, the problem is magnified as we are now in the period
where the first batch of home owning citizens are leaving
this mortal coil and passing the value of the house plus
all the other items to the children.
If you Inherit However big or small your inheritance, there
are a number of ways to put your money to good use. The
ideal way, of course, is to invest at least some of it,
so it grows into a more substantial sum.
With many people now spending as long in retirement as
they do in their working lives, it's wise to add a substantial
sum to your pension. Especially when you consider that
the State Pension is currently only worth 15% of an average
person's wage and is forecast to drop to 8% in the next
two years. By making a one-off lump sum payment into your
pension fund you can make a big difference to the quality
of your retirement - and, of course, it is tax efficient.
Another way to invest your inheritance is to place it
in an Individual Savings Account (ISA). These are tax-free
in the hands of an investor, and could be an ideal way
to help save for a rainy day or to give you a more comfortable
retirement. Other options to consider include Friendly
Society accounts and National Savings.
Leaving an Inheritance First, it is important to decide to whom you
may be leaving an inheritance.
Without some careful planning, the amount you leave might
be a lot less than you think because the taxman might
want the beneficiaries to pay Inheritance Tax.
In addition, the Government's ongoing review of the fairness
of the tax system is likely to affect any inheritance
planning, so you should think about making some plans
right away.
Wills For a lot of people, making a will is the most
obvious way to plan for the future and the fairest way
to provide for loved ones yet, 70% of the UK population
do not have a will. Dying without leaving a will is called
"dying intestate" - which means that all your
"wealth" is divided up between each surviving
member of your family without you having any say in the
matter so the relation that you loathe gets a proportion
of your money, and there is usually a big fight.
Worse still, if you haven't any family or beneficiaries,
it goes straight to the Crown - yes, the state grabs it
all.
Another drawback of dying intestate is the fact that the
law does not recognise unmarried partners, friends or
charities.
All this heartache and the inevitable delays can be avoided
if you make a will.
We will be able to help advise you on the content of your
will, or alternatively recommend the services of a local
solicitor. At a cost of around £80 it could save
your family a fortune and a great deal of worry.
Inheritance Tax Planning There are a number of ways we can help you
to reduce or indeed negate any possible Inheritance Tax.
You could, for instance, make gifts now to intended beneficiaries
as these gifts are free of inheritance tax, providing
you live for 7 years or more following the gifts. There
are several other tax-efficient ways of making annual
gifts, both to individuals and organisations such as charities.
You could then leave a further £255,000 free of
inheritance tax to them in your will and gifts between
married couples are not subject to any Inheritance Tax.
You might like to think about setting up a trust. If you
put part of your estate into a trust for your grandchildren,
it could be decades before your cash is again under the
eye of the taxman. Trusts can be complicated and we will
set this up fir you, if necessary, working in conjunction
with your solicitor.
Another option you might like to consider is setting up
an insurance policy to pay the tax bill after you die.
We can compare all insurers and find you just the right
policy.
How is an Estate Distributed? The spouse will benefit only if he or she survives
the intestate partner by 28 days. Where the spouse does
not survive, the intestate estate will be dealt with as
if there had been no spouse.
Some ideas you might like to consider having checked the
current level of the Nil Rate Band below which tax is
not payable.
Making grandchildren the main beneficiaries
Using foreign property
Giving your house to your children but
remain living in the property
Gifting personal effects
Using the nil-charge on inheritances
by a spouse
Setting up gifts within the 7-year period
prior to death regulation
Setting up a family trust
Discuss how much you can give away each
year free of inheritance tax liability
