Upon your death, your estate may be eligible to pay inheritance tax. This tax is costly and can often add stress to your loved ones during a sensitive time. However, through inheritance tax planning you can reduce the amount of tax payable on your estate when you die, helping to limit hassle for your loved ones.
The process of inheritance tax planning, however, can often be complex and difficult to understand, which is why it is important to seek the assistance of specialist solicitors. At PDA Law, our family law team is very experienced in this area and can help you plan for the future as efficiently as possible.
If you would like tailored legal advice regarding inheritance tax planning from our team of expert solicitors, call us today on 01244 373 373.
What is inheritance tax?
Inheritance tax – also known as IHT – is the tax levied on your estate upon your death. Taxable items include:
How much inheritance tax will be payable on my estate?
How much tax is payable is dependent upon your marital status and the overall value of your estate. If the value of your estate is above the threshold for your marital status, you will be taxed 40% on anything over the threshold.
For couples who are married or in a civil partnership, the inheritance tax threshold is £650,000 between them. If your estate is worth less than this amount, you will not have to pay inheritance tax.
However, if your joint estate is worth more than this, you will be expected to pay 40% on any amount over the £650,000 threshold. For example, if a couple’s joint estate is worth £700,000, you will only need to pay inheritance tax on the extra £50,000.
If you are single, the inheritance tax threshold is £325,000. Anything over this figure will be taxed at 40%.
How can I minimise inheritance tax?
Through careful planning, the amount of inheritance tax payable upon your death can be reduced. Depending on the intended recipients of your estate, different legal tactics must be employed in order mitigate tax. It is always advised, however, that you speak to an expert tax advisor to discuss your personal circumstances and wishes.
In order to reduce inheritance tax upon your death, there are certain precautions you can take. These include:
Leaving your estate to your spouse – if you leave all of your joint estate to your spouse and the value of the estate is below £650,000, your estate will be inheritance tax-free. It is essential you have a will that states where your assets will go after you die, as it will not automatically go to your spouse.
Gifting people – you are allowed to give away £3,000 of tax-free inheritance per year in the form of gifts. By reducing your estate through yearly gifts, you will minimise the amount of IHT payable upon your death.
Setting up trusts – the tax treatment of trusts is a complex subject. Certain trusts are exempt from IHT as they are no longer part of your estate. It is always advisable to seek legal help when setting up a trust.
Giving your assets away – by simply giving your assets away to those you trust, those assets will be exempt from IHT. However, this only applies if the asset itself was gifted at least seven years before your death.
Because of the complexity of planning your inheritance tax, it is recommended you get in touch with a professional who can advise you on the best methods for planning ahead.
Contact us today
To receive help and advice regarding inheritance tax, speak to PDA Law’s tax planning team. Call us today for a free no obligation consultation on 01244 373 373. Alternatively, fill out our online contact form and we will be in touch.