Inheritance tax planning is an essential aspect of financial management, aimed at minimising the inheritance tax burden on your estate. This tax is levied on the property, money, and possessions of someone who has passed away. Understanding the complexities of inheritance tax in the UK is crucial for ensuring that your loved ones can benefit fully from your estate.
Inheritance tax in the UK is levied on the estate of a person who has passed away. Estates valued over £325,000 are subject to inheritance tax at a rate of 40%. However, there are several allowances and reliefs that can reduce this liability.
Nil-Rate Band (NRB): The first £325,000 of an estate is taxed at 0%. This is known as the Nil-Rate Band.
Residence Nil-Rate Band (RNRB): An additional threshold is applicable when passing on a home to direct descendants. The RNRB is currently up to £175,000.
Transfer of Unused Thresholds: Unused NRB and RNRB can be transferred to a surviving spouse or civil partner, potentially doubling the allowance for married couples and civil partners.
Taper Relief: Applies to gifts given away during the giver’s lifetime. If the giver dies within seven years of the gift, the tax reduces on a sliding scale, potentially lowering the inheritance tax on these gifts.
Gifts: Making gifts during your lifetime can significantly reduce inheritance tax. Understand the rules around Potentially Exempt Transfers (PETs) and Chargeable Lifetime Transfers (CLTs).
Trusts*: Using trusts can be an effective way to manage and protect your assets, potentially reducing inheritance tax liabilities.
Life Insurance: A life insurance policy written in trust can help cover any inheritance tax liabilities, ensuring your beneficiaries receive the full value of your estate.
Charitable Donations: Gifts to charity are exempt from inheritance tax and can reduce the taxable value of your estate.
Business Relief: Certain business assets qualify for business relief, which can reduce or eliminate inheritance tax.
Agricultural Relief: Like business relief, agricultural relief can reduce inheritance tax on farmland and related assets.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
* Trusts are not regulated by the Financial Conduct Authority
Gaining financial advice for inheritance tax is crucial, it minimise tax liabilities, and effectively manage estate planning, safeguarding your assets and legacy.
Inheritance tax planning is a complex but essential part of managing your financial affairs.
By understanding the basics and considering strategies like gifting, setting up trusts*, and making charitable donations, you can ensure that your estate is passed on to your loved ones with a reduced tax burden.
Remember, the rules can change, so it’s important to stay informed and seek professional advice.
Ready to start your inheritance tax planning? Contact our team of experienced financial advisers at Morrinson Wealth for personalised guidance and strategies tailored to your unique situation.
