It’s been said that only two things are certain in this life—death and taxes. This couldn’t be more true when it comes to inheritance tax. By law, inheritance tax is payable on things of value that a decedent has distributed or is about to distribute following a will.
This includes their home, savings and investments, jewellery, cars, works of art, and any other assets and properties — including those that are overseas. The good news is that there are perfectly legitimate ways to reduce the inheritance tax bill of your beneficiaries and help your loved ones get what they deserve out of your assets.
Under normal circumstances, inheritance tax becomes payable upon death. However, there are certain situations when inheritance tax becomes payable earlier, such as when an asset is put in a specific kind of trust. When a person dies, his or her assets turn into his or her estate, and a part of the estate left to the civil partner or spouse is automatically exempt from IHT, provided that they are not domiciled outside of the country. If they are, the maximum amount of assets exempt from inheritance tax is £325,000. Unmarried partners, regardless how long-standing the partnership has been, don’t have these automatic rights.
To calculate the total IHT that will be payable upon your death, any non-exempt transfers like gifts made in your lifetime should be taken into account. When the total amount of the non-exempt gifts you have made within 7 years of death, added to the value of the portion of the estate left to your non-exempt beneficiaries exceeds what is called the nil rate thresholds, your inheritance tax payable is at 40% of the excess amount. This can be reduced to as low as 36% should the estate qualified for a reduction due to charity bequest. In some circumstances, inheritance tax may also become payable on gifts made.
MVL Wills and Trusts of Battle, East Sussex, can help you with their inheritance tax planning experience, and advice. A consultation is free and can be held at our offices or in the comfort of your own home. Call 01424 577070 or email info@mvlwillsandtrusts.co.uk for an appointment.
