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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