Benjamin Franklin summed up the theme of these FAQs perfectly. There can’t be many people who haven’t heard his famous quote: ‘…in this world, nothing can be said to be certain, except death and taxes’. Inheritance Tax is where the subjects of Franklin’sfamous quote come together into an administrative process that needs to be managed carefully when someone passes away.
What is Inheritance Tax?
Inheritance Tax is a tax that is paid on the value of an estate over a certain threshold. The government sets this level, and it depends on who’s in power at the time and their attitude to inherited wealth that determines what the threshold will be.
The basic Inheritance Tax threshold is currently £325,000 per person as of April 2016. The Inheritance Tax rate is 40% of the value of your estate above this threshold however there are certain factors which can affect the amount to be paid.
Who Pays The Inheritance Tax Bill?
If Inheritance Tax is due it’s the responsibility of the deceased’s executor, administrators or trustees to settle the bill with HMRCfrom the deceased’s estate.
How can I reduce/minimise any Inheritance Tax due from my estate in my lifetime?
That’s an interesting question. Yes, there are ways you can do this.
From the outset, if you want to know how to reduce Inheritance Tax, you should get professional advice and plan your strategy well. That said here are some examples of where Inheritance Tax can be reduced.
Can I Reduce Inheritance Tax Using Gifts?
Here seven is the magic number. You can make cash gifts to relatives and friends that will be Inheritance Tax exempt if you live for seven years after you’ve gifted it.
If you die within the seven-year period, then the gift forms part of your estate and is counted as part of your inheritance threshold. From there a plethora of exacting criteria is applied. Unless you are fully conversant with Inheritance and Probate Law, it’s best to call Mr Probate.
More useful, is that you can gift up to £3,000 annually with no Inheritance Tax implications.
You can also make Inheritance Tax-free gifts for family weddings, Christmas, birthdays, education fees, charities and political parties to varying levels. Again, seek professional advice especially when dealing with more substantial sums.
CanCharitable Donations Reduce Inheritance Tax?
Yes, they can, in some cases. If you leave 10% or more of the net value of your estate to a UK registered charity, InheritanceTax is payable at the reduced rate of 36% on some of the remaining assets. However, don’t forget that inheritance tax is not payable on gifts left to these institutions during your lifetime.
How Can I Plan For My Inheritance Tax Needs?
As we have seen, Inheritance Tax is complex legislation. Seeking professional help is the surest way to help you to plan your estate and ensure beneficiaries can benefit fully.
Please feel free to contact us on 0203 389 8469 or 0161 342 1409 should you have any further questions.