Inheritance Tax & Estate Planning Advice
in Leamington Spa & Warwickshire
Inheritance Tax (IHT) is a tax on everything you own (also known as your ‘estate’) after you pass. Things that make up your estate include your possessions, money, and assets such as property or vehicles. If the value of an estate exceeds the available tax-free thresholds, Inheritance Tax must be paid to HMRC at a rate of 40%.
When IHT was first introduced, it was intended to target only the very wealthy. But with property prices having risen significantly over recent decades, more and more people are finding their estate value now exceeds the available inheritance tax free bands.
Understanding inheritance tax thresholds
Nil-rate band
The nil-rate band serves as a personal inheritance tax allowance. This means that each person subject to potential IHT has their own allowance of £325,000, and an IHT liability only arises if their estate value, and gifts in the last seven years before death, exceeds that amount.
If you're married or in a civil partnership
If you leave all your assets to your husband, wife or registered civil partner, there's usually no need to pay any inheritance tax. This means that the individual who has passed away will not be utilising their nil-rate band at all, allowing the surviving partner to effectively double theirs because the two nil-rate bands will be added together, totalling £650,000.
Residence nil-rate band
If your children or grandchildren inherit your home, or an equivalent amount from the estate, an additional threshold of £175,000 is available. This is added to the existing nil-rate band of £325,000, thus allowing an estate to potentially be worth up to £500,000. If your taxable estate is valued above this amount, then 40% inheritance tax will be paid on everything above the threshold.
It is important to note if your estate value is more than £2 million, the residence nil-rate band is tapered. This means estates worth over £2 million will start to lose the residence nil-rate band (RNRB), as it will be withdrawn at a rate of £1 for every £2 over £2 million. On the other hand, if the property in the estate is worth less than the residence nil-rate band threshold, the relief is limited.
Like the nil-rate band, any unused portion of the residence nil-rate band can be passed on to a surviving spouse or civil partner.
Reducing your inheritance tax liability
Inheritance tax can significantly hinder the transfer of wealth from one generation to the next. However, several strategies, like the examples below, can be used to reduce or even eliminate this tax, resulting in more of your assets being transferred to your loved ones. But it's important to remember that everyone's financial circumstances are unique. Seeking the advice of a financial adviser can help you determine the best course of action to minimise your inheritance tax liability.
Gifting
Regular gifting within annual exemptions is a great way to gradually transfer your wealth to your loved ones while reducing the possibility of a hefty tax bill. Larger gifts can be made, however, there are rules and limits to gifting, and seeking the advice of a financial adviser can help navigate these complexities.
IHT Investment Reliefs
Certain investments qualify for reliefs, which can help reduce your Inheritance Tax exposure. By taking advantage of these reliefs, you can make strategic investments that benefit your portfolio and help protect your estate. A financial adviser can help you find suitable investments that fit your needs and help you achieve your financial goals.
Trusts
A trust can allow a gift of assets or cash (or both) to be made and can be set up to enable you to retain a right to income, capital, or both. Lifetime gifts to trusts can trigger lifetime inheritance tax charges, so the help of a financial adviser is key. Trusts are a flexible and useful tool in IHT planning.
Life Assurance Products
Consider insuring some or all of your inheritance tax liability through a life assurance plan. It can provide added security and peace of mind for you and your loved ones and can be helpful to your estate personal representatives, providing them with the funds to meet the liability so probate can be dealt with.
Charitable Donations
If the value of your estate exceeds the bands and reliefs, IHT is charged at 40%. The rate can reduce to 36% if 10% or more of the ‘net value’ of an estate is left to a qualifying charity.
Looking for independent financial advice in Leamington Spa & Warwickshire?
Jack Bewick is part of an experienced team of financial advisers providing holistic and tailored financial planning solutions for businesses, individuals and families throughout the UK, and specifically across the Warwickshire and Midlands areas including Warwick, Leamington Spa, Kenilworth, Stratford-upon-Avon, Coventry & Warwickshire, Lutterworth & Leicestershire areas.
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Offering expert independent financial advice on:
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Pensions & Retirement
Savings & Investments
Inheritance Tax and Estate Planning
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​INHERITANCE TAX PLANNING, WILL WRITING, TRUSTS AND TAXATION ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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