As a business or property owner, you’ve spent some time deciding on your long-term objectives and there comes a time when you’re ready to make decisions that will benefit your family later in life. With this in mind, it’s never too early to begin to plan your estate, which always involves careful consideration when planning your inheritance.
There are always ways to reduce the amount of inheritance tax you pay on your estate, with this blog post covering the ways the tax is levied and ways you can minimise your inheritance tax bill and make use of the current exemptions available.
What is Inheritance Tax?
Inheritance tax is the tax you pay on property or land that you own, including properties that may be overseas, and is payable upon your death. IHT can also be applied to any other assets you have which are seen to be valuable, such as jewellery, savings and investments.
Your family are your first priority when planning your estate, and inheritance tax can play a huge part in that. After all, you’ve built up your estate to make sure your family is properly provided for after your death, which is why, during the planning process, you should consider the current value of your assets and how that might change as well as the potential needs of your family in the future.
How does IHT affect those around me?
When leaving your estate to your spouse or civil partner, your estate would be exempt from inheritance tax. The only exception here would be if your spouse or civil partner is based outside the UK, which would mean you maximum amount of estate you could give them would be £325,000 before IHT is applied.
If you choose to leave your estate to someone other than a spouse or civil partner, such as a non-exempt beneficiary, the IHT would be made payable on the amount that exceeds the nil rate threshold, which is currently £325,000. This usually rises each year but has been frozen at this amount for tax years up to and including 2020/21.
How might IHT affect my business?
Generally, your business can be passed over to another party without any IHT have to be paid, as it will instead attract business property relief of 100%. However, assets owned by you but are used by a partnership will attract business property relief of 50%, if you a partner in the partnership or part of a company you control.
3 tips for minimising your IHT bill
Formulating a detailed plan to minimise your tax liabilities is essential, as the more you have, the less you should leave to chance. The three most common ways available to minimise your IHT bill work well to ensure that more of your wealth is passed to the people you love:
Write a will
This is one of the most important things you can do to help reduce the amount of IHT you would have to pay, as if you die without a will in place, your estate would be divided out according to pre-set formulas, meaning you would have no say over who gets what and how much tax is payable.
Your will allows you to specify who will distribute your property after your death, and the people who will benefit. Because of this, you consider some key questions when writing your will:
- Who? – Who do you want to benefit from your wealth? Do you need to provide for your spouse? Should your children share equally in your estate or would you like to give to charity?
- What? – Should your business be passed to all of your children, or only those who have been involved in the business? Should you compensate any others with assets of a similar value? Would there be implications with multiple ownership?
- When? – You should always consider the age and maturity of your beneficiaries. Would you prefer to place assets in a trust restricting access to income and/or capital, or wait until your death?
Gifting
You are allowed to make a number of small gifts each without any IHT liabilities. These do not have to be in cash, and you could save more IHT and/or capital gains tax by gifting assets with the potential for growth in value, as if you gift while the asset has a lower value, the appreciation then accrues from outside of your estate.
Another option for gifting is charitable gifts. These can take many forms and result in significant tax reliefs for both lifetime giving and giving upon death. This can come in the form of gift aid, payroll giving and gifts of assets, all of which can increase the value of your gift through the various forms of tax relief available.
Making use of IHT exemptions
You should ensure that you make the best use of the available lifetime IHT exemptions, which includes gifts you make of up to £250 per person per year and gifts to charities.
What to do next
If you’re ready to take the next step and begin planning your estate, then you can contact our specialist team to discuss inheritance tax planning and writing a will. We recognise that your family is your first priority and providing for their future is a must, so we’re ready to provide you with tailored advice. You can visit our website for more information and to get in touch to discuss your strategy going forward.