Inheritance Tax Made Simple

Inheritance tax (also referred to as IHT) has become a bugbear for so many.

It has unique features and in a way is very easy to collect (because the authorities meet with least resistance).  But because it is relatively easy for those with wealth to minimise it, if not avoid it altogether, it’s sometimes even called a voluntary tax.

We discuss IHT in our new, easy-to-read tax guide.  But if you’d like a few quick tips on how IHT may affect you, read on.

(Please note that we’ve simplified this to make it easy to glance through – please download the full guide or talk to us for any further clarification.)

Some Facts About IHT:

  • IHT is charged on a person’s estate when you die (and includes certain gifts made during your lifetime)
  • The tax rate is 40%
  • The first £325,000 is not chargeable.
  • You may think this does not apply to you (the average house price is far below this threshold), but many have been surprised to discover that their estates fall well within this level.
  • Even if your assets are worth less than the threshold, you should still consider making a will so that you choose who will receive your assets after your death.

Making Lifetime Gifts

  • Many people do not find themselves in a position to make large gifts during their lifetime, because naturally it would prevent you having enough to live on.  This does mean you may have significant value retained in your estate.
  • There are exemptions which you can use to build up funds outside your estate without incurring IHT liability. Make sure you use these properly.
  • A husband and wife can each take advantage of the exemptions (£3,000 per donor per year).

Consider setting up a trust.

  • Setting up a trust can reduce your own IHT liabilities, and that of those who receive your property on death.
  • There are ways to gift assets in a way that reduces your tax liability. For example, you can’t give away your home to your children – but you can continue to live in it rent free.

Make sure you have a will.

  • Create a will.  If you die without a will, your estate may be distributed in a way you would not have chosen.
  • Keep your will up-to-date to reflect changes in the family situation. In particular, wills must be reviewed and amended as necessary on marriage or on divorce.
  • Know where your will is kept.
  • Make sure you have life insurance.