Inheritance tax can cost loved ones hundreds of thousands in the event of your death, yet it’s possible to legally avoid huge swathes of it, or possibly pay none at all.
So what is Inheritance Tax
When you die, the Government assesses how much your estate is worth, then deducts your debts from this to give the value of your estate. Your assets include:
- Cash in the bank
- Any property or business you own
- Payouts from life insurance policies
Your estate will owe tax at 40% on anything above the £325,000 inheritance tax threshold when you die (or 36% if you leave at least 10% to a charity).
Dealing with it is one of the biggest single money saving things you can do, is prepare a will or trust. As some simple actions can save you £100,000s. Yet sadly many people ignore it, either not wanting to consider the future or simply unable to broach it with relatives for fear of seeming grasping.
The Basic allowance
The current allowance whereby no inheritance tax is charged is on the first £325,000 (per person) of someone’s estate – which is the value of their total assets they leave behind when they die. Couples can leave a home worth £650,000 without it attracting inheritance tax (singles £325,000).
The politics of inheritance tax are among the most controversial around. The idea is that without inheritance tax you perpetuate inherited wealth, so the children of the rich stay rich. Inheritance tax redistributes income so some of the money goes to the state to be distributed for the benefit of all. The argument against it is that when money’s earned tax is paid at the time, so to pay tax on it again isn’t fair.
After years of rocketing house prices, many more people have been caught by the inheritance tax threshold, raising it higher up the agenda. Yet, whatever your views politically, inheritance tax is a financial fact, so it makes sense to know how it will affect you, and whether you can soften the blow.
It is an area that requires expertise and experience to navigate, with so many permutations and legal entities to consider, it is best to consult a financial expert.