Inheritance Tax (IHT) is based on the principle of redistributing some of your wealth through the tax system, rather than the whole value being passed on to your chosen beneficiaries.
The good news is that there are ways of minimising your inheritance tax liabilities, so that your wealth can be enjoyed by those whom you want to enjoy it.
The current rates – in the financial year 2016 to 2017 – grant a tax-free allowance of £325,000, with tax payable at a rate of 40% on any amount in excess of that sum. However transfers between married couples and civil partners are not subject to IHT, and any unused part of the current £325,000 allowance may be passed on to the surviving spouse or civil partner, thus making the maximum potential allowance of £650,000 available on the second death.
With effect from the next financial year (2017 to 2018), a further Transferable Main Residence Allowance (TMRA) – starting at £100,000 – is to be added to the basic allowance and increased to £175,000 by the year 2020/2021. At that stage, therefore, inheritance tax becomes payable only on any amount in excess of £500,000. So with the addition of TMRA, couples can make use of a combined potential allowance of £1 million by the financial year 2020/2021. The First Equitable Guide to The New Inheritance Tax Rules 2017 explains these changes in more detail.
In addition to being married or in a civil partnership, here are 8 more tips and suggestions for minimising your Inheritance Tax liabilities:
Even this very brief overview may help to illustrate some of the many options and complexities in managing your Inheritance Tax liabilities.
Effective Inheritance Tax planning is a complicated area of financial planning and to safely tread the line between tax avoidance (which is illegal) and tax evasion (which is not), you would be best advised to consult a qualified Independent Financial Adviser (IFA), duly authorised and regulated by the Financial Conduct Authority (FCA) before arranging your Inheritance Tax affairs.
At First Equitable we work diligently with our clients, helping them to navigate through the myriad of different options that exist to achieve positive outcomes for their, and their heirs, future financial security.
If you have a query regarding Inheritance Tax planning, and would like to receive some helpful advice in a language you can understand, please complete download our Guide to Estate Planning & Preservation; or alternatively complete our contact form and an adviser will be in touch to discuss your needs.