Inheritance Tax Planning2021-06-07T14:54:11+00:00

Inheritance Tax Planning

Inheritance tax was once something the wealthy expected to pay upon the death of a relative. These days it’s a very different situation. The sharp rise in house prices has meant that many people are leaving behind estates that attract inheritance tax. If you live in Shrewsbury, Shropshire, we at LG Embrey can provide tax advice to help you minimise the potential cost of inheritance tax (IHT).

LG Embrey are independent financial advisers based in Shrewsbury, Shropshire under pi financial ltd, authorised and regulated by the Financial Conduct Authority. To discuss IHT planning call 01743 382002 or fill in the contact form below.

Discover more about IHT

When do you pay IHT?
IHT liabilities
Valuing IHT assets
Implementation
IHT Shropshire

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When is inheritance tax due?

Under normal circumstances, there is no inheritance tax to pay if the person who died if:

  • They left an estate worth less than £325,000; and
  • They left everything to a spouse, civil partner, charity or political party.

Since 2020/21 an additional £175,000 exemption from inheritance tax is available if their home is given to their children (this includes adopted, fostered and stepchildren, as well as grandchildren). This is expected to rise with inflation.

If the person was married or in a civil partnership and the estate was worth less than the inheritance tax threshold, this could increase the threshold to £1 million.

Talk with an IHT professional

How much is inheritance tax?

The standard rate of inheritance tax is 40% but it’s only charged on the part of the estate that is above the threshold, this is reduced to 36% if the deceased left more than 10% to charity.

IHT liabilities.

Government receipts from 2020 show that inheritance tax raised more than £5 billion in total tax revenue for the year. There are some steps you can take to lower your inheritance tax bill, four of which are highlighted on here.

Asset exemption

As the most rural county in England, inheritance tax planning in Shrewsbury and Shropshire is especially important. That’s because some assets are exempt from IHT, especially ones relating to agricultural land. However, for assets to qualify they need to meet two conditions:

  1. That exemption only applies to certain types of assets; and
  2. The assets need to meet a minimum holding period prior to death.

Gifting to family and friends

Making a gift to close family members or friends whilst alive can help in reducing inheritance tax liabilities.

What you actually gift to your loved ones is up to you, but to make sure your gift is tax-free you’ll have to do some planning. The key thing to remember is long as you live more than seven years from the date you make the gift, the receiver of the gift will not have to pay any inheritance tax when you pass away.

Gifts to your spouse

When you pass away, your spouse/civil partner can inherit your estate tax-free. In addition gifting to a spouse isn’t the only option, there are a number of other exemptions when gifting third parties.

Examples of IHT exemptions include £3,000 worth of gifts each year, along with wedding and ceremonial gifts, IHT gifts for Christmas or birthdays, support for living costs (an elderly relative or child under 18) as well as gifts to charity and political parties.

Property transfers

If you have a child or children who live with you and are likely to live with you for some time, you may gift a share of your property to them.

However, there are a number of caveats that could incur capital gains tax, but it all depends on the circumstances. For instance, if you’re covering the majority of running costs for a property then tax may be avoided.

What assets count for inheritance tax?

Assets that are affected by inheritance tax include items such as money in a bank, property, land, jewellery, cars, shares, a pay-out from an insurance policy and jointly owned assets. Assets that are affected by inheritance tax include items such as money in a bank, property, land, jewellery, cars, shares, a pay-out from an insurance policy and jointly owned assets.

Implementation of your IHT plan.

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Inheritance Tax Planning

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Inheritance tax planning FAQs

Can I Gift My House to My Children to Reduce Inheritance Tax?2021-06-10T13:10:27+00:00

The answer to this isn’t straightforward. In order to avoid the IHT liability, the gift must be made with no strings attached. If the gift has conditions, or you benefit from the home in some way such as continuing to live there, it will be known as a “gift with reservation of benefit” and will remain subject to IHT. There are, however, ways to avoid such a benefit but these are complex and so we would recommend seeking professional advice from us to discuss your particular circumstances.

When Should I Seek Assistance with Inheritance Tax Planning?2021-06-10T13:10:46+00:00

When it comes to inheritance tax planning, the sooner you do it, the better. If you delay making plans for a number of years, your options could potentially be reduced, and costs could be increased. For example, making a gift to a beneficiary could potentially reduce or eliminate your IHT bill. However, you have to survive a minimum of seven years for this to take full effect, otherwise IHT may be payable on the gift.

Act now by getting in touch with our team here in Shrewsbury to discuss Inheritance Tax Planning.

What is the Residence Nil Rate Band?2021-06-10T13:11:12+00:00

The residence nil rate band has been gradually introduced since April 2017. This is added to your existing threshold. The initial allowance was £100,000 in 2017, then it was raised to £125,000 in 2018/19. It will be £150,000 in 2019/20 and the final amount will be £175,000 in 2020/21. This new allowance will only apply if you want to pass your home to a direct descendant like a child or grandchild, therefore not everyone will be able to take advantage of it.

When added to your existing threshold, this could potentially give you an overall allowance of £500,000 if you are single or divorced, or £1 million if you are married or in a civil partnership.

How Can I Reduce Inheritance Tax?2021-06-10T13:11:36+00:00

There are numerous ways that you can reduce or even avoid IHT. Tax legislation constantly changes and evolves, and so up-to-date financial advice is always required to ensure your plans are tailored for your particular circumstances and wishes.

We provide a specialist Inheritance Tax Planning service to help you protect your assets in the case of your death.

Who Pays the Inheritance Tax?2021-06-10T13:11:50+00:00

If there’s a will, it’s usually the executor of the will who arranges to pay the IHT. If there isn’t a will, it’s the administrator of the estate who does this. You can pay IHT from funds within the estate, or from money raised from the sale of the assets.

In actuality, most IHT is paid through the Direct Payment Scheme (DPS). This means, if the person who died had money in a bank or building society account, the person dealing with the estate can ask for all or some of the IHT due to be paid directly from the account through the DPS.

The liability will typically need to be paid within six months from the date of your death, and failure to settle the bill will result in interest being charged by HM Revenue & Customs. Once the liability has been paid, your executors can apply for a Grant of Probate which will allow them to legally access the rest of your assets.

Once the tax and debts are paid, the executor or administrator can distribute what remains of the estate.

How Much Inheritance Tax will I Have to Pay?2021-06-10T13:12:15+00:00

Inheritance tax is calculated at 40% of the value of the possessions over and above the IHT thresholds. The rate may be reduced to 36% if 10% or more of the estate that is above the threshold is left to charity. So if the value of your estate is above the NRB, then the part of your estate above the threshold might be liable for tax at the rate of 40%.

As an example, if your estate is worth £525,000 and your IHT threshold is £325,000, the tax charged will be on £200,000 (£525,000 – £325,000). The tax would be £80,000 (40% of £200,000).

What is the Inheritance Tax Threshold?2021-06-10T13:12:28+00:00

Currently the IHT threshold is £325,000 for an individual and £650,000 for a married couple or civil partners. If a person is widowed, it might still be £650,000 depending on how much of the allowance was used when their partner passed away.

What is Inheritance Tax?2021-06-10T13:12:38+00:00

Inheritance Tax (IHT) is a tax payable on the value of a person’s estate when they die. It is paid if the value of their possessions (their estate) exceeds their IHT thresholds (also known as nil rate bands) and exemptions. If your estate is large enough to incur Inheritance Tax, you can reduce or even avoid it in a number of ways with the help of a financial adviser.

If you are married or have a civil partner, then you can leave your entire estate to your spouse or partner free of inheritance tax. But if you want to leave some or all of your estate to family and friends, then it may be liable for inheritance tax.

Arrange a personal consultation.

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