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Passing on your wealth to the right people at the right time

The facts

* £5.4bn The amount the government received in inheritance tax in the tax year 2020/2021

* Over £200,000 The amount of average inheritance tax bill


What is Inheritance Tax (IHT)?

IHT is a tax on the assets that belong to you when you die.

Assets include the total of everything owned by you and a share

of anything owned jointly. Here are the most common assets:

Personal property

Property/land

Shares

Chattels

Securities

Cash

Future inheritances

Life insurance death

benefits not in trust


The nil-rate band

Every individual has a nil-rate band, which means you’re allowed

a certain amount of assets before IHT becomes payable. For the

tax year 2022/2023 the nil-rate band is £325,000 (£650,000 jointly).

If your estate is worth more than this your executor may be

liable to pay tax at a current rate of 40%.

What’s more, the government has introduced a main residence

nil rate band of £175,000 in the 2021/22 tax year which can

have the effect of reducing your potential IHT bill further.


HM Revenue and Customs practice and the law relating to

taxation are complex and subject to individual circumstances

and changes which cannot be foreseen.

Will writing is not part of The Openwork Partnership proposition

and is offered in our own right. Openwork Limited accepts

no responsibility for this aspect of our business.

Trusts are not regulated by the Financial Conduct Authority.

The Openwork Partnership is a trading style of Openwork Limited,

which is authorised and regulated by the Financial Conduct Authority


Reducing your IHT

There are a range of options that help reduce the potential

tax liability on your death. Investing a little time and effort now

means you can rest assured the people you want to leave your

possessions and wealth to will not be faced with an unexpected

bill to pay on your death.


We cover some of the options here, but please do get in touch to

discuss the options right for your own personal circumstances:


— Make a Will and keep it up to date

The first step to estate planning is to make a Will

(if you haven’t made one already).


Without a Will your estate will be subject to intestacy rules which

could mean the things you leave behind don’t go to the people

you’d like them to. Once you have made your Will make sure you

keep it up to date as your circumstances may change over time.


— Exemptions

There are a number of exemptions that could be used to

immediately reduce the value of your estate. If used correctly

they are an efficient way to reduce any IHT bill:


— Annual exemption allowance – you can gift up to £3,000

each year. Where total gifts in a year fall short of this allowance,

the balance can be carried over to the following year and

added to that year’s allowance. You can carry over up to a

maximum of £6,000, and if the carried allowance is not

used in that year it will expire.


— Spouse exemption – most married couples and civil partners

can ensure no IHT is payable by arranging, through a Will,

that on first death all the deceased spouse’s/partner’s

assets pass to the surviving spouse/partner.


— Wedding gift/civil partnership ceremony gifts:

— Parents can give up to £5,000

— Grandparents can give up to £2,500

— Anyone else can give up to £1,000


— Small gifts

Up to £250 to as many individuals as you like each

tax year, although not to someone who has already

received a gift of your whole £3,000 annual exemption.


— Charity

Gift at least 10% of the net value of your estate in your

Will and potentially reduce the amount of IHT paid to 36%.


— Normal expenditure

Regular gifts made from surplus income can be exempt.


— Trusts

A trust is a legal arrangement where a person (trustee) holds

assets for the good of one or more beneficiaries. Trusts are

complicated and must be set up carefully. We can advise

you on which trust, if any, may be right for your needs.


Summary

Now you know a little more about inheritance tax, when it

applies and what steps you can take to reduce it. However,

this is a complicated area and advice is important.

Once you have plans in place, you should review them

regularly to make sure they remain right for you.


If you’re worried you may be leaving a potential

IHT bill to your loved ones, please get in touch.




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