Inheritance tax is a form of tax that is payable once you have passed away. The person who inherits your property or money will be responsible for paying this, which is why careful tax planning is required beforehand to make sure you do not leave your loved ones with a huge bill to pay. This tax is payable on everything that has value when you die, and thus can include the likes of properties and land, including those based overseas, vehicles, works of art, savings and investments, jewellery, and, of course, your home.
Paying inheritance tax
The first thing you need to do is determine whether there will be inheritance tax to pay on the estate you are going to leave behind. If your estate is valued below £325,000, and you are single, there will be no inheritance tax to pay. However, if your estate is worth more than this, it will be subject to a tax of 40 per cent. The only exceptions relate to instances when you qualify for relief as an agricultural or business asset, or you pass on your estate to an exempt beneficiary, such as a charity. If you are married or in a civil partnership, and you leave everything to your partner, there will not be any inheritance tax to pay. Moreover, it is vital to note that the 40 per cent will only be payable on anything above £325,000. So, if your estate is worth £500,000, you will only pay 40 per cent on the £175,000 over the threshold, which amounts to £70,000.
How to plan for inheritance tax
You are advised to use the assistance of an inheritance tax planning consultant, which is something Taylor Brunswick Group can provide you with. When you seek expert help, you can have the peace of mind that inheritance tax will be reduced as much as possible. Let’s take a look at some of the things Taylor Brunswick Group and other financial advisors will do for you when planning for inheritance tax:
- Make a will – If you don’t write a will, you will have no control over who gets what and how much tax to pay. Instead, this will be divided according to a pre-set formula.
- Make use of trusts – If you put some of your investments, property, or cash into a trust, they will no longer be part of your estate, and thus they will not be susceptible to inheritance tax. This is also a great to support any children or grandchildren you have.
- Make allowable gifts – Each year, you can make a number of small gifts, up to £3,000, without creating inheritance tax liability.
- Take out life insurance – Another option is to take out a life insurance policy. This will not directly lower the amount of inheritance tax that is due. However, it can lessen the burden, as the payout from the policy will help your loved ones pay the tax.
- Give to charity – The rate at which inheritance tax is calculated will drop from 40 per cent to 36 per cent if you leave at least ten per cent of your estate to charity.
Managing Partner in Taylor Brunswick Group. A Hong Kong-based wealth-management firm that offers expert wealth management advice that will increase the potential to maximize growth for any individual or businesses.