What is inheritance tax?

Inheritance tax, once known as Estate Duty – used to be something that only troubled the seriously rich.

With previous housing booms and a recovering economy, many more people are starting to find that the taxman will take a share of their legacy before their loved ones.

But there are steps you can take to help ensure your wealth goes where you want.

The Inheritance tax (IHT) net is catching more and more people, thanks to previous rises in house prices, which means that many more of us have estates – which is everything you own – worth above the threshold value of £325,000, or £650,000 for married couples and civil partners.

The threshold figure has stayed the same since 2009 and will remain frozen, and IHT receipts have been climbing in recent years.

Assets beyond the IHT threshold taxed at 40% can mean a substantial loss.

However, inheritance tax liabilities can be reduced or avoided altogether  -if you make estate planning part of a long-term financial strategy.

Ways to reduce inheritance tax.

The most obvious way to reduce your potential IHT is to give money away before you die.

For example, you can give £3000 away every year. You can also give an unlimited number of small and larger gifts to a couple on their marriage.

It may seem a simple solution – but you may need to start your generosity early. Beyond these allowances, the money given away seven years before you die may be counted as part of your estate and, therefore, subject to IHT.

However, although gifting is easy enough, for most of us, property is our main asset and the main reason why our estates fall into the scope of inheritance tax in the first place.

You can’t gift small parts of your home, but some measures can take your property outside the IHT threshold.

Using Life Insurance & Investments.

Other alternatives include Insurance policies and certain classes of investments, which can provide some measure of exemption for your heirs – while still providing you with the potential for income while you can still enjoy it.

It’s essential to take professional advice before deciding about your finances, and don’t hesitate to contact us if you’d like to discuss it.