|
It is important to remember that you don't have to be
a millionaire or even slightly be rich for your estate to be eligible
for Inheritance Tax. Currently IHT is levied on everything you leave
over £300,000 for this tax year and this includes
- your home and car
- your furniture and personal effects
- your investments and savings
- the proceeds of your life insurance (unless under trust)
Most people nowadays are therefore liable for this tax
unless they plan positively, and quite legally, to defer or avoid this
responsibility.
The rate of Inheritance Tax is 40% for everyone. This is equivalent to
the highest current rate for income tax. The tax is paid by those that
inherit - and is deducted from the value of the estate on death - so
inheritance tax is relevant whether you stand to gain an inheritance
or you plan to leave one.
Also, the problem is magnified as we are now in the period where the
first batch of home owning citizens are leaving this mortal coil and
passing the value of the house plus all the other items to the children.
However big or small your inheritance, there are a number of ways to
put your money to good use. The ideal way, of course, is to invest
at least some of it, so it grows into a more substantial sum.
With many people now spending as long in retirement as they do in their
working lives, it's wise to add a substantial sum to your pension. Especially
when you consider that the State Pension is currently only worth 15%
of an average person's wage and is forecast to drop to 8% in the next
two years. By making a one-off lump sum payment into your pension fund
you can make a big difference to the quality of your retirement - and,
of course, it is tax efficient.
Another way to invest your inheritance is to place it in an Individual
Savings Account (ISA). These are tax-free in the hands of an investor,
and could be an ideal way to help save for a rainy day or to give you
a more comfortable retirement. Other options to consider include Friendly
Society accounts and National Savings.
First, it is important to decide to whom you may be leaving an inheritance.
Without some careful planning, the amount you leave might be a lot less
than you think because the taxman might want the beneficiaries to pay
Inheritance Tax.
In addition, the Government's ongoing review of the fairness of the tax
system is likely to affect any inheritance planning, so you should think
about making some plans right away.
For a lot of people, making a will is the most obvious way to plan for
the future and the fairest way to provide for loved ones yet, 70% of
the UK population do not have a will. Dying without leaving a will
is called "dying intestate" - which means that all your "wealth" is
divided up between each surviving member of your family without you
having any say in the matter so the relation that you loathe gets a
proportion of your money, and there is usually a big fight.
Worse still, if you haven't any family or beneficiaries, it goes straight
to the Crown - yes, the state grabs it all.
Another drawback of dying intestate is the fact that the law does not
recognise unmarried partners, friends or charities.
All this heartache and the inevitable delays can be avoided if you make
a will.
We will be able to help advise you on the content of your will, or alternatively
recommend the services of a local solicitor. At a cost of around £100
it could save your family a fortune and a great deal of worry.
There are a number of ways we can help you to reduce or indeed negate
any possible Inheritance Tax.
You could, for instance, make gifts now to intended beneficiaries as
these gifts are free of inheritance tax, providing you live for 7 years
or more following the gifts. There are several other tax-efficient ways
of making annual gifts, both to individuals and organisations such as
charities.
You could then leave a further £300,000 free of inheritance tax
to them in your will and gifts between married couples are not subject
to any Inheritance Tax.
You might like to think about setting up a trust. If you put part of your
estate into a trust for your grandchildren, it could be decades before your
cash is again under the eye of the taxman. We can often gather the appropriate
documents to enable specific plans to be written in trust, however, trusts
can be complicated and cover many assets, in which case we might refer you
to your solicitor.
Another option you might like to consider is setting up an insurance
policy to pay the tax bill after you die. We can compare all insurers
and find you just the right policy.
The spouse will benefit only if he or she survives the intestate partner
by 28 days. Where the spouse does not survive, the intestate estate will
be dealt with as if there had been no spouse.
Some ideas you might like to consider having checked the current level
of the Nil Rate Band below which tax is not payable.
- Making grandchildren the main beneficiaries Using foreign
property
- Giving your house to your children but remain living
in the property
- Gifting personal effects
- Using the nil-charge on inheritances by a spouse
- Setting up gifts within the 7-year period prior to
death regulation
- Setting up a family trust
- Discuss how much you can give away each year free of
inheritance tax liability
|