Inheritance Tax (IHT) is an emotive issue. Many people choose to take steps to minimise their IHT liability so that as much of their estate as possible passes to chosen beneficiaries, rather than the Government.
The first question is whether you need to worry about it at all. Unfortunately, we’ve seen examples of completely unnecessary trusts being established to avoid IHT that would never have been due.
Each person has a personal allowance of £325,000 before IHT is due. You can pass your allowance onto your spouse or civil partner. So for a couple, the combined estate would have to be worth over £650,000.
In addition, each person has an additional £175,000 allowance if property is ultimately left to your children. So the estate may have to be worth £1m before IHT becomes due.
If, in spite of the allowances your estate is likely to be liable for IHT, what else can you do?
Gifts
Giving away your wealth may trigger an IHT liability if you die within seven years of the gift. However, you can make gifts up to a total of £3000 per year without any liability. You can also make regular gifts from income if certain conditions are met.
Charitable Legacies
Money you leave to charity is normally deducted from the value of your estate. Your IHT rate will be reduced if you leave 10% of your estate to charity.
Trusts
Assets placed in trusts will be deemed outside the value of your estate after seven years. However, this is a very complex legal area and trusts often come with their own tax implications. It’s not an area to venture into without expert legal advice and be warned as there as these can be missold.
While there are legitimate ways to reduce IHT liabilities, they have to be carefully considered and there are rules to follow. If you want to explore options for minimising IHT Call PowellsLaw on 01934 623 501
