Our solicitors can help you to put measures in place that will reduce the amount of inheritance tax that your estate will owe after you’ve gone. There are a number of variables that can have an impact on this, but we can help you fully understand the process.
UK Inheritance Tax Advice
In the same way that not every estate will have to pay for Probate, not everyone will be required to pay Inheritance Tax in the UK. However, unlike the Probate threshold, the Inheritance Tax threshold is set by the government.
It is important to note that if your estate is worth over £325,000, your family will only py Inheritance Tax on the amount that it is over. So, if your estate is worth £700,000, your family will owe tax on £375,000. If you choose not leave any assets to charity, the amount of inheritance tax to be paid will be £150,000. This is quite a hefty amount of the estate to be taken in tax, so where possible it is a good idea to try and reduce your inheritance tax.
Change in Rules
When it comes to Inheritance Tax on property, the rules have changed quite recently. The £325,000 threshold still applies, but the ‘main residence Nil-rate Band’ means that if you pass your home onto a direct descendant, then you will benefit from an additional £150,000 in tax free allowance. A direct descendant is most commonly considered to be a child or a grandchild.
If you are married or in a civil partnership, it is also possible to apply any unused allowance that your partner leaves behind to your own allowance. This means you can pass on property worth more without having to pay more inheritance tax.
The Inheritance Tax Threshold
The inheritance tax threshold is £325,000, so if your estate is worth more than this when you pass away, your family will have to pay tax on the difference between this threshold and your estate’s value. It is now possible to receive additional tax-free allowances on top of this threshold too. Whether you are eligible for more allowance will depend on whether you own property, are married or in a civil partnership, and/or have descendants.
There is currently no higher threshold at which Inheritance tax stops being charged. However, there is a limit for the main residence nil-rate band allowance. For the 2019-2020 tax year, the highest value your estate can be worth is £2 million before the Nil-Rate Band will gradually reduce, or taper away even if a home is left to direct descendants.
Steps to reduce Inheritance Tax
When you are sorting out your affairs, there are some steps that we can help you with that will allow you to ensure your family does not suffer a heavy tax deduction after you are gone. These are:
- Making sure that you have a legal Will that deals with your assets in the most beneficial way.
- Keeping your Will up to date.
- Learning about possible reliefs and exemptions from Inheritance Tax that apply to you and your family.
- Considering ‘gifting’ parts of your estate to people now, rather than leaving them in your Will. `This can help completely avoid Inheritance Tax if you then survive for another seven years.
- Considering placing your assets into a Trust
Inheritance Tax and Trust Funds
It is possible to reduce or eradicate the amount of Inheritance Tax that your family has to pay after you’ve gone by setting up a Trust fund and transferring your assets into it. However, there are only certain types of Trusts that mean they can completely avoid paying Inheritance Tax, so we can help you understand what the best option is for your situation.
- Can I avoid paying Inheritance Tax in the UK?
In the UK it is possible to avoid paying Inheritance Tax by either:
- Having an estate worth under £325,000, including all money, property and possessions
- Setting up certain types of Trust funds
- Leaving your property to your spouse or civil partner in your Will
There are also ways to reduce the amount of Inheritance Tax you have to pay too.
- How to avoid Inheritance Tax with a Trust?
If you transfer your assets into a certain type of Trust you essentially give up your ownership of the assets and can therefore avoid Inheritance Tax.
You should consult a legal professional to help you establish what kind of Trust will be most beneficial if you want to avoid or reduce the amount of Inheritance Tax payable on your estate after you pass away.
- How to reduce Inheritance Tax?
There are many ways in which you can reduce the amount of Inheritance Tax payable on your assets after you're gone, including:
- Gifting parts of your estate to loved ones
- Setting up a trust fund and transferring your assets into this
- Leaving your property to children or grandchildren, or your spouse or civil partner in your will
- Where can I get advice on Inheritance Tax?
To get advice on Inheritance Tax seek the services of a specialist Inheritance Tax solicitor. They can advise you on what your estate is worth, how much Inheritance Tax your family will have to pay and how you could reduce this amount.
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