Inheritance tax has always been a hot topic. And as property prices appear to be on the upward trend again we could all soon find ourselves with higher priced homes and as a result, higher value estates. So, taking steps now, to protect your family from a hefty tax bill after your death, could be more important than ever.
David Webb, partner and head of wills and probate at QualitySolicitors Mander Hadley provides some of the key things you need to know about inheritance tax and explains the options available for minimising your liability.
What is inheritance tax?
In simple terms if the value of your estate is over a certain amount when you die, inheritance tax will have to be paid. Your estate includes everything you own – so, your home, other property, savings, investments, possessions and even any debts owed to you.
Your estate will also include the value of any gifts you’ve made to others during the last seven years, meaning you can’t just simply give away all your assets just before you die to avoid inheritance tax. You can however make a number of allowed gifts each year which will not be considered to be part of your estate. A solicitor will be able to advise you on these and how to best use the allowances to suit your circumstances.
The amount of inheritance tax to be paid will depend on the threshold which applies to you. The standard threshold for the 2013/2014 tax year is £325,000, but if you’ve benefited from your late spouse’s estate, then your threshold could be as much as £650,000. Your solicitor will be able to advise you on this in more detail.
Your estate will be taxed at 40% of its total value over the allowed threshold, after any deductions have been made for funeral expenses, debts, transfers to your spouse or exempt gifts (typically to charity or gifts involving businesses or agricultural property).
Providing for your children
Any inheritance you want passing on to your children can be secured by making a will or trust arrangements. How this is done will depend on your own personal and family circumstances as well as affordability. Lifetime trusts can be an effective way of helping ensure a will can’t be changed or challenged, plus they offer tax saving opportunities too.
Reducing your inheritance tax liability
The important thing is that your will reflects your wishes. So once you’ve decided on what it is you’re looking to achieve for your dependants and family, there will usually be opportunities to minimise inheritance tax liability by choosing tax efficient investments, creating trusts or putting other lifetime tax planning arrangements in place. A professionally drawn will should then be made to complement the arrangements you’ve made. Before you make any plans you may want to speak with a solicitor to discuss your options. At QualitySolicitors we provide a Free Initial Assessment service, so you can call us for a chat to find out more.
Inheritance tax and the family home
Your home is likely to be the single most significant and valuable asset in your estate. Being able to remove it as an asset for inheritance tax purposes, yet still continue to live in it, would be the tax equivalent of having your cake and eating it. As you’d expect though, there are limitations on how you can do this, and as described earlier, you can’t just give away an asset. You could consider giving ownership of your home to your children or putting it into a family trust, and then paying rent to live there, but that might be expensive. Another option might be to take an equity release on your home (with specialist advice) and then give the capital away to your children as a gift.
If at the end of the day inheritance tax does need to be paid, because of the value of your home, then that part of the tax can usually be paid in installments over ten years (with interest), hopefully allowing your family to avoid selling the home to pay the tax.
If inheritance tax planning is something you believe could be of benefit to your family, you should talk to a solicitor about your situation and options. At QualitySolicitors we provide a Free Initial Assessment service, so you can call us for a chat to find out more.
Find your local QualitySolicitors here.