The Importance of Inheritance Tax Planning
Inheritance tax has been in the news recently following increasing speculation that the Prime Minister could announce cuts. However, as it stands, inheritance tax affects many families. Without proper planning, it may have to be paid in the event of your death. Currently charged at 40%, it is worthwhile carrying out Inheritance Tax planning. If you have a potential liability, it is also sensible to take advice regarding estate planning and utilising the number of lifetime exemptions.
What is Inheritance Tax?
Inheritance tax (IHT) is the tax your beneficiaries may have to pay if your estate is above a certain size. You can leave up to £325,000 to your beneficiaries tax-free, which is known as the IHT nil-rate band, but everything above that threshold will be taxed, usually at the rate of 40 per cent. As you can imagine, this can result in a very substantial bill, especially for large estates.
The Importance of Inheritance Tax Planning
As solicitors specialising in wills, trusts, probate, and tax planning, RDC has witnessed first-hand the impact of inadequate preparation for inheritance tax on families and their legacies. In this article, we aim to shed some light on the significance of inheritance tax planning and provide valuable insights for individuals and families seeking to secure their financial future.
Key Strategies for Inheritance Tax Planning
Inheritance tax planning is not about evading taxes or engaging in illegal activities. Instead, it involves making informed decisions to minimise the tax burden on your estate while ensuring that your loved ones receive the maximum benefit from your legacy. Here are some essential strategies to consider:
One effective way to reduce the value of your estate subject to IHT is by making tax-free gifts during your lifetime. These can include annual exemptions, small gifts, and gifts for specific occasions like weddings. By taking advantage of these allowances, you can gradually reduce the taxable value of your estate.
Use of Trusts
Trusts are powerful tools for managing and distributing your assets while minimizing IHT liabilities. A trust is a legal arrangement you can create where your asset (or your gift) is held by a trustee or group of trustees, for the ultimate benefit of a named third party (your beneficiary).
When the investment is transferred to the trustees, it no longer technically belongs to you. Therefore, it won’t be counted as part of your estate when you die as long as it is subject to the rules above. This can significantly reduce inheritance tax liability for the people you’re passing the assets to.
Your will plays a pivotal role in inheritance tax planning. A well-structured will can ensure that your assets are distributed efficiently and in a tax-efficient manner. Consider consulting with a solicitor to draft or update your will.
Seeking Professional Advice
The tax landscape is complex and ever-changing. Seeking professional advice from a solicitor specialising in tax planning can help you navigate the intricacies of IHT and ensure that your plans are up to date with current legislation.
The Peace of Mind of Inheritance Tax Planning
Beyond the financial benefits, inheritance tax planning offers peace of mind. Knowing that you have taken proactive steps to secure your family's financial future can be immensely satisfying. It also simplifies the process of estate administration for your loved ones, sparing them unnecessary stress during an already challenging time.
Inheritance tax planning also enables you to have a say in how your assets are distributed. By creating a carefully crafted plan, you can ensure that your assets are used for the benefit of your beneficiaries, whether it's for education, housing, or any other purpose you feel is important.
Whether you need immediate help or long-term planning for peace of mind, our team is on hand to provide professional, friendly advice on tax planning. Contact our Wills, Trusts, Tax & Probate team today by telephoning Bradford 01274 735511, Ilkley 01943 601173 or Bingley 01274 723858. Please note we do not provide financial advice. If you require advice on finance and accountancy or financial services, you should contact a suitably qualified expert.