“In this world nothing can be said to be certain, except death and taxes”
Inheritance tax is one of those ‘certain’ taxes, but is payable by your personal representatives (those individuals administering your estate) after you die.
Inheritance tax is a tax on the value of your estate when you die. Your “estate” is the total of everything that you own, known as ‘assets’, at the time of your death. Your assets will include your share of any jointly owned property at the time of your death. Assets may also include trusts or gifts made during your lifetime.
Examples of ‘assets’ are property, investments, insurance, pension payments, and personal possessions such as cars, jewelry or furniture. Inheritance tax is paid on gifts made in the past seven years. If at the time of your death you still benefited from any gifts made in your lifetime such as a house you have gifted but still live in, inheritance tax will be paid on this too. Assets held in a trust from which you receive personal benefit will also form part of your estate and will be taxable.
Due to the property inflation many more people are now hit by inheritance tax.
So how much inheritance tax will your estate have to pay?
There is a tax-free allowance for every individual of £325,000 to give away on death. Anything above that is taxed at 40%.
If you were married or in a civil partnership, any unused allowance can be added to your partner’s allowance when you die. This means their allowance can be as much as £650,000.
Inheritance tax can be paid at a reduced rate of 36% on some assets if you have left 10% or more of the ‘net value’ of your estate to a charity in your Will. If you are considering leaving a legacy to a charity, then your Will should be drafted correctly to make use of the reduced rate.
If you own a business there are certain reliefs which could give you up to 100% relief on certain assets of the business. It is important to update your Will and review your current circumstances so you are taking full advantage of what is available.
The Residence Nil Rate Band came into force in April 2017. This can increase an individual’s total allowance to £500,000 which therefor increases a couple’s allowance to £1 million. However, there are a number of pitfalls with this new allowance, as your current Will could exclude this allowance altogether. It is therefore crucial that you review your Will and consider the options available to you.
At Geoffrey Lurie we can offer expert advice and help you plan as best you can for the future. We can tailor our advice to meet the needs of your individual circumstances. Please contact us on 0191 466 1444 and speak to our expert lawyers who will be able to assist you, email us on firstname.lastname@example.org or get in touch here